Blockchain technology in the future Swedish electricity system

by

Saga Carle Viktor Vifell Nilsson

Master of Science Thesis TRITA-ITM-EX 2020:341 KTH Industrial Engineering and Management Industrial Management SE-100 44 STOCKHOLM

1

Blockchain i det framtida svenska elsystemet

av

Saga Carle Viktor Vifell Nilsson

Examensarbete TRITA-ITM-EX 2020:341 KTH Industriell teknik och management Industriell ekonomi och organisation SE-100 44 STOCKHOLM

2 Abstract Blockchain, a distributed ledger technology, became publicly known when the cryptocurrency Bitcoin was introduced in 2009. As the financial value of cryptocurrencies increased, the interest for blockchain grew, leading other sectors to explore if blockchain could be used in other areas as well. One of these areas was the energy sector where the technology was predicted to transform the market by cutting out intermediaries with the use of peer-to-peer electricity trading. Today there are few successful commercial blockchain projects and the blockchain-hype is seemingly decreasing. It is, however, unclear if this is a natural part of the innovation process that follows the Gartner hype cycle or if the energy sector will reject the technology.

This thesis aims to investigate the value characteristics of blockchain in the electricity system, and if these can add value to the future electricity system in Sweden. Firstly, to answer this question, a literature review is conducted to explore how blockchain has been applied in the electricity sector in earlier studies and what value the technology offered. Secondly, an interview study with 28 participants was conducted with the purpose to understand future predictions of how the electricity system in Sweden will be configured, and the energy sector’s understanding of blockchain technology.

The literature concluded that blockchain could particularly offer these five value characteristics: 1) transparency 2) decentralisation 3) immutability 4) traceability and 5) P2P interaction. Furthermore, did the interview study result in a multi-level perspective analysis and proposed that the electricity system in Sweden is facing a reconfiguration pathway driven by the landscape pressures, consisting of electrification, digitalisation, decarbonisation and a potential nuclear phaseout. Moreover, this study has found that the electricity system in Sweden is fronting a regime transition from a centralised system with stable generation and consumption- based production, to a decentralised system with more intermittent generation and production- based consumption.

In this regime shift, new challenges will occur, and the common denominator for these solutions is a more flexible electricity system, i.e. that the demand-side needs to become more flexible in consumption. The thesis has found that blockchain can provide the most value for the electricity system by functioning as a layer of governance on a potential local flexibility market. The flexibility will be decentralised and offered by both consumers and industries. The actors will, consequently, need an authentication process to confirm if flexibility providers can provide flexibility at a given moment. The five value characteristics do consequently have potential to provide a solution to this specific challenge.

The thesis does, however, conclude that both the flexibility market, emerging business models and blockchain technology are not mature enough today. Accordingly, it is too early to decide if blockchain is the best-suited technology to serve this purpose, even if the value characteristics indicate potential.

3 Sammanfattning Blockchain är en distribuerad databasteknologi som blev känd för den stora allmänheten när kryptovalutan bitcoin lanserades 2009. När intresset och värdet på kryptovalutor i allmänhet, och bitcoin i synnerhet, ökade blev även andra sektorer intresserade av blockchain-teknologin. En av dessa sektorer var energibranschen där visionen var att teknologin skulle eliminera mellanhänder genom att erbjuda el-transaktioner direkt mellan två personer med hjälp av exempelvis solpaneler. Idag är det däremot få, eller inget projekt, som blivit kommersiellt gångbart och den en gång stora tilltron på att blockchain skulle revolutionera energibranschen börjar lägga sig. Det är däremot oklart om det är en normal reaktion i en innovationsprocess likt Gartners hype-cykeln, eller om intresset för blockchain slocknat för gott.

Den här uppsatsen har undersökt vilka värdeskapande egenskaper blockchain-teknologin besitter och om dessa egenskaper kan skapa värde i Sveriges framtida elsystem. För att kunna besvara denna fråga inleddes uppsatsen med en litteraturstudie för att förstå hur blockchain har tillämpats på tidigare projekt i energibranschen och vilka värdeskapande egenskaper tidigare studier har framhållit hos teknologin. Vidare har en intervjustudie med 28 deltagare genomförts med målet att förstå hur framtidens elsystem kommer se ut i Sverige och vilken åsikt som deltagarna hade gentemot blockchain.

Litteraturstudien kunde konstatera att blockchain framför allt erbjuder dessa värdeskapande egenskaper; 1) transparent 2) decentraliserat 3) beständigt 4) spårbart och 5) individinteraktion. Vidare resulterade intervjustudien i en analys ur ett flernivå-perspektiv där det föreslås att Sveriges elsystem är i en konfigureringsfas som är drivet av ett nytt samhällstänk bestående av elektrifiering, digitalisering, utfasning av fossila bränslen och kärnkraftens framtid. Vidare framhåller denna studie att det svenska elsystemet står inför ett regimskifte från ett centraliserat system med stabil generation och konsumtionsbaserad produktion, till ett decentraliserat system med en ökad intermittent generation och en produktionsbaserad konsumtion.

Detta regimskifte innebär däremot nya utmaningar där den gemensamma lösningen för dessa utmaningar är flexibilitet. Den här uppsatsen har funnit att om blockchain kommer vara värdeskapande för det framtida svenska elsystemet, är det som ett övergripande autentiseringslager på en potentiell flexibilitets marknad. Flexibiliteten kommer troligtvis vara decentraliserad och tillgodoses av många konsumenter och industrier. Marknaden kommer följaktligen behöva en autentiseringsprocess för att verifiera att leverantörer kan tillgodose en viss mängd flexibilitet vid ett specifikt tillfälle. Blockchains fem värdeskapande egenskaper kommer därför väl till pass då denna process behöver vara transparent, decentraliserad, spårbart och beständigt.

Den här studien har däremot dragit slutsatsen att varken flexibilitets marknaden, affärsmodeller eller blockchain-teknologin är tillräckligt välutvecklade idag. Följaktligen är det för tidigt att uttala sig om blockchain är den bäst lämpade teknologin att använda sig av för autentisering, även om teknologins egenskaper indikerar en potential.

4 Acknowledgements Firstly, we would like to take this opportunity to thank KPMG and all of the employees at the digital transformation and innovation department for giving us the chance to write our thesis together with you. A special thank you to Ebba Holmström for managing all of the contacts with KPMG and of course, to our supervisor Oscar Wiklund who gave us support and helped us define our research questions and approach. Furthermore, a big thank you to all of the interviewees that supported us in giving us their time and knowledge in both blockchain and the electricity sector.

Secondly, we would like to thank our supervisor at KTH, the one and only Per Lundqvist. Also, a big thank you to all of our classmates; without you, these five years at university would have been a lot more challenging. Also, a big thank you to our family and friends that have been there for us through the ups and downs, not just during this project, but also during these five years at KTH.

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5 Table of Contents Abstract ...... 3 Sammanfattning ...... 4 Acknowledgements ...... 5 List of Figures ...... 8 List of Tables ...... 8 1 Introduction ...... 10 1.1 Problem statement ...... 11 1.2 Purpose and research question ...... 11 1.3 Research contribution ...... 12 1.4 Limitations ...... 12 1.5 Delimitations ...... 12 1.6 Disposition ...... 13 2 The electricity system ...... 14 2.1 Electricity value chain ...... 14 2.2 Electricity market ...... 15 2.3 Transmission and Distribution ...... 16 2.4 Frequency control ...... 17 2.5 Electricity mix ...... 18 2.6 Future electricity trends ...... 19 2.6.1 Prospect of Nuclear Power ...... 19 2.6.2 Decarbonisation ...... 19 2.6.3 Electrification ...... 20 2.6.4 Digitalisation ...... 21 3 Blockchain ...... 22 3.1 Shared ledger ...... 22 3.2 Permissions ...... 23 3.3 Cryptography ...... 24 3.3.1 Cryptographic hash function ...... 24 3.3.2 Asymmetric cryptography ...... 24 3.3.3 Merkle tree ...... 25 3.4 Consensus ...... 25 3.4.1 Proof of Work (PoW) ...... 26 3.4.2 Proof of Stake (PoS) ...... 26 3.4.3 Proof of Authority (PoA) ...... 26 3.4.4 Practical Byzantine Fault Tolerance (PBFT) ...... 26 3.5 Blockchain in practice ...... 26 3.6 Smart Contracts ...... 29 3.7 Digital Identities ...... 29 4 Theoretical framework ...... 29 4.1 Multi-Level Perspective Framework ...... 30

6 4.2 Sociotechnical landscape ...... 30 4.3 Regimes ...... 30 4.4 Niches ...... 30 4.5 Transition pathways ...... 31 4.5.1 Substitution ...... 31 4.5.2 Transformation ...... 31 4.5.3 Reconfiguration ...... 31 4.5.4 De-alignment and re-alignment ...... 32 5 Methodology ...... 32 5.1 Research purpose ...... 32 5.2 Research approach ...... 32 5.3 Literature review ...... 33 5.4 Data collection ...... 33 5.4.1 Qualitative data ...... 34 5.4.2 Quantitative data ...... 35 5.5 Data analysis ...... 36 5.6 Research quality, validity & reliability ...... 36 5.6.1 Internal validity ...... 37 5.6.2 Construct validity ...... 37 5.6.3 External validity ...... 37 5.6.4 Reliability ...... 38 6 Findings from literature review ...... 38 6.1 Value characteristics and issues of blockchain ...... 38 6.2 Application of blockchain in the electricity sector ...... 40 7 Empirical findings ...... 41 7.1 Qualitative findings ...... 41 7.1.1 The future electricity system in Sweden ...... 41 7.1.2 The future of blockchain in the electricity system ...... 51 7.2 Quantitative findings ...... 56 8 Analysis & Discussion ...... 58 8.1 Sociotechnical landscape ...... 59 8.2 Regime ...... 60 8.3 Niche ...... 62 8.3.1 Cascade 1: Renewable energy sources ...... 62 8.3.2 Cascade 2: Flexibility services ...... 62 8.3.3 Cascade 3: Blockchain ...... 63 9 Conclusion ...... 66 10 Proposed future works ...... 66 11 References ...... 67 12 Appendix I – List of interviewees ...... 84 13 Appendix II – Systematic Literature Review ...... 85 13.1 Decentralised energy trading ...... 85 13.2 IoT, smart devices, automation & asset management ...... 86

7 13.3 Grid management ...... 87 13.4 Electric e-mobility ...... 87 13.5 Security ...... 88 13.6 Metering and billing ...... 89 13.7 Green certificates ...... 89 13.8 Cryptocurrencies, tokens and investments ...... 89 13.9 General research ...... 89

List of Figures Figure 1 Outline of thesis ...... 13 Figure 2 Electricity value chain ...... 15 Figure 3 Electricity market ...... 16 Figure 4 Electricity Generation in Sweden 2018 in TWh ...... 18 Figure 5 Installed wind power in Sweden ...... 20 Figure 6 Cryptographic hash function ...... 24 Figure 7 Asymmetric cryptography ...... 25 Figure 8 Transaction information ...... 27 Figure 9 Transactions to blocks ...... 27 Figure 10 Validation ...... 28 Figure 11 Chain of blocks ...... 28 Figure 12 Distribution of interviewees ...... 35 Figure 13 Example of a survey question ...... 35 Figure 14 Overlapping steps in qualitative data analysis ...... 36 Figure 15 Result of Literature Review ...... 40 Figure 16 Quantitative findings from survey ...... 56 Figure 17 Multichoice question in Survey ...... 57 Figure 18 Technologies in the future electricity system ...... 57 Figure 19 A dynamic multi-level perspective of the technical transition of the Swedish electricity sector ...... 59 Figure 20 Regime transformation ...... 61 Figure 21 Flexibility market ...... 63

List of Tables Table 1 Electricity demand in TWh ...... 21 Table 2 Qualitative summarisation of Production ...... 44 Table 3 Qualitative summarisation of consumption ...... 46 Table 4 Qualitative summarisation of batteries ...... 47 Table 5 Qualitative summarisation of Transmission/Distribution ...... 49 Table 6 Qualitative summarisation of the future electricity system ...... 50 Table 7 SWOT-visualisation of Blockchain in the electricity system ...... 55

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Abbreviations

AI Artificial intelligence BRP Balance responsible party BSP Balance service provider CHP Combined heat and power CO Certificates of origin

CO2 Carbon dioxide DER Distributed energy resources DLT Distributed ledger technology DSO Distribution system operator EV Electric vehicles GO Guarantees of origin HYBRIT Hydrogen Breakthrough Ironmaking Technology IRENA International Renewable Energy Agency ICT Information and communication technologies IoT Internet of things MLP Multi-Level Perspective NEPP North European Energy Perspectives Project P2P Peer-to-Peer RES Renewable energy systems ST Sociotechnical SVK Svenska kraftnät (Sweden’s TSO) TSO Transmission system operator V2G Vehicle-to-grid

9 1 Introduction

Chapter 1 of the report introduces the subject and the study in terms of problem statement, purpose and research question as well as research contribution, delimitations and limitations of the study. The chapter will then end with an outline of the report.

The driving force of energy transformation is innovation. Renewable energy technologies are becoming better and more efficient each year. In recent years, renewables have become the go- to solution, for several countries, in order to achieve a more reliable, cost-effective and environmentally friendly energy supply (IRENA, 2019b). Technological transitions explain how innovations happen and are adapted to society. Eventually, innovative technologies, that once were radical, become the norm and define the current society. Innovative technologies are a vital part of the development towards a more sustainable future. However, it can be difficult to foresee which innovations that will become a part of society and which will not.

When new potential technology enters the market, media and businesses will often hype the technology, making bold promises on how the technology will be a silver bullet in a specific industry. According to the Gartner hype cycle, the hype will after a period of time fade, and the technology will go through a so-called Trough of Disillusionment. The interest in the technology decreases as implementation fails to deliver, and investments tend to only continue if the providers of the product can improve it to the early adopter’s satisfaction. During this phase, many product innovations are phased out. Nonetheless, eventually comes the point where the use and benefits of the technology are more clearly defined, and deployment of the technology becomes more and more mainstream (Gartner, 2020).

The deployment of renewable energy technologies have risen in the last decade, where global generation from renewables have increased from 3,804 TWh in 2008 to 6,674 TWh in 2018 (Dudley, 2019). This transition, is, however, not without its challenges. New technologies are required in order to implement and integrate renewable energy sources so that the energy generated can be consumed efficiently and securely. According to the International Renewable Energy Agency (IRENA), the transformation of the power sector is driven by three major factors; electrification, decentralisation and digitalisation. With this comes the need for synergies between several various innovations in order to create promising solutions, where one of the suggested enabling technologies is blockchain (IRENA, 2019b).

Blockchain can briefly be described as a decentralised, cryptographic, immutable distributed ledger which eradicates the need for trust and a central point of authority. The interest of blockchain peaked between 2016 and 2017 with the rise of Bitcoin1. The technology was said to potentially “revolutionise the world economy” (McKinsey, 2016) and several companies in various business sectors threw themselves over the technology, determined to implement blockchain into their business in order for not to miss out on anything. Nonetheless, just a few

1 Bitcoin is a cryptocurrency which uses blockchain technology to make verified p2p transactions without a central bank or single institution. The term Bitcoin as well as Blockchain was coined by Satoshi Nakamoto in the paper Bitcoin: A Peer-to-Peer Electronic Cash System.

10 years later, the hype of blockchain waned as these pilot projects failed to deliver, and the technology was in fact in the Trough of Disillusionment (Kietzmann & Archer-Brown, 2019). Today blockchain is still a relatively immature technology; however, it is going towards the Slope of Enlightenment phase of the hype cycle, where the benefits of the technology begin to crystallise and second- and third-generation products emerge (Gartner, 2020). Several uncertainties with the technology are still at hand and in some industries blockchain is more relevant than others, but the technology could still be used in every industry, but the question is not if it can be used but if there is a need for blockchain.

1.1 Problem statement Sweden has set up a goal to be fossil-fuel-free by 2045 which renders in increased penetration of renewable energy systems (RES) on the electricity system and an increase of electric vehicles (EV) (Regeringskansliet, 2018). The combination of an increased amount of decentralised intermittent energy and rising electricity demand is thus creating capacity and flexibility challenges on the grid. Decentralisation and electrification have increased the importance of digitalisation in the power sector and is now a necessity for Sweden in order to achieve the goal of a fossil-free Sweden by 2045 (IVA, 2020). One of the digital technology trends in Sweden, amongst artificial intelligence (AI) and the Internet of Things (IoT) is blockchain (NEPP, 2019). However, while AI and IoT are already being implemented, the potential of blockchain has not yet been realised. There are multiple start-ups, pilots, trials and research projects regarding blockchain and a two-year-old commercial report stated that the technology had the potential to disrupt energy-related products and commodities (PWC, 2018). Nevertheless, as mentioned in the previous chapter, the hype of blockchain has recently decreased, and it is, consequently, unclear what value blockchain could bring to the transformation of Sweden’s electricity system, or if the technology will be a part of it at all.

1.2 Purpose and research question Progressing from the Swedish electricity system today and the problem statement, the thesis aims to investigate what opportunities and challenges that the electricity system is facing in the transition towards being fossil-fuel-free by 2045 and if blockchain will be an enabling technology in this transition. The purpose is to investigate what forces that are driving the development and what hinders it. With these challenges and opportunities identified, the thesis will take on an exploratory approach to examine if the characteristics of blockchain can create value in the emerging prospects.

The main research question is: Will blockchain create value in the future Swedish electricity system?

To answer the main research question, three sub-questions have further been identified: - How will the future Swedish electricity system be configured? - What are the value-creating characteristics of Blockchain? - Can these characteristics potentially create value for the future electricity system?

11 1.3 Research contribution Previous studies have examined various, potential use-cases for blockchain by studying the technology and then finding a use-case in the energy domain where blockchain could possibly pe applied. Other studies look at the challenges and opportunities of implementing blockchain in the energy sector. Sweden’s power sector could be a potential adopter of blockchain technology, however, previous research lack to present that issues and opportunities for implementation of blockchain in the energy sector can vary between different countries as laws, regulation, culture and politics set different prerequisites. This study will therefore contribute by investigating if blockchain technology could potentially be implemented in the Swedish power sector, by taking into account the factors that differentiates Sweden’s power sector from other national power sectors.

To create a comprehensive and nuanced analyse, interviews with academics, start-ups, consultancies, incumbent companies and authorities have been conducted. The result of the thesis is meant to give actors on the Swedish electricity system an understanding of what challenges and opportunities the system is facing and, additionally, if blockchain can create value in this evolving system.

1.4 Limitations Limitations are constructed by boundaries and implications that are out of control of this report. This report is limited by both time and resources and, furthermore, does this study interview individuals in a competitive market which implies a risk that the interviews will be biased or reluctant to share all aspects of their company’s knowledge. The technology is also novel, consequently, there is a risk that knowledge regarding the technology from both literature and interviewees are limited. See chapter 5.6 Research quality, validity & reliability how these limitations have been mitigated and how the quality of the thesis has been affected.

1.5 Delimitations Delimitations aim to limit the scope of the thesis. Firstly, this study will solely focus on the electricity system; therefore, when the term “energy” is used in the report, this refers to electricity, hence excluding heat, oil and gas. The study mainly focuses on the Swedish electricity system as the vast majority of the interviewees either work on the Swedish electricity market or have knowledge about the Swedish electricity system. Due to time constraints, the number of interviews is limited, and for most of the interviews, only one person per company will be interviewed.

Regarding the analysis of blockchain, only the characteristics and the potential value-creating applications of the technology are considered in the assessments. Considering the novelty of the technology, it has been chosen to exclude technical comparisons between various distributed ledger technologies (DLT) and also the viability and financial outcomes.

12 1.6 Disposition The study is divided into four main sections: Introduction, Concept, Findings and Analysis, the outline of the thesis can be seen in Figure 1

2. The electr icity 3. Blockchain system n o i t c u o

r 4. Theor etical t 5. Methodology n fr amew ork I t p e c n o 6. Findings from 7. Empir ical C litter atur e r eview findings s g n i d n i 8. Analysis & 10. Proposed

F 9. Conclusion discussion futur e w orks

s

i Figure 1: Outline of thesis s y l a

n A Chapter 2, The electricity system introduces the current electricity system in Sweden and describes the most vital parts and functions of the system. The chapter ends with an outlook of future trends and predictions.

Chapter 3, Blockchain explains the underlying components, concepts and technologies that are unique for blockchain. Subsequently, this chapter solely focuses on blockchain and leaves out the electricity system.

Chapter 4, Theoretical framework describes the multi-level perspective-framework that the thesis has applied in the analysis chapters. The framework is described as a whole, and the various sections of the chapter provides a comprehensive understanding of how the framework will be applied.

Chapter 5, Methodology provides thorough explanations and motivations of the chosen methodologies utilised in the study, as well as an assessment of the research’s quality, validity and reliability.

Chapter 6, Findings from the literature review presents the findings from the literature review regarding blockchain in the electricity system. This chapter begins with an examination

13 of the value characteristics of blockchain and ends with a summary of the conducted systematic literature review of how blockchain has been applied to the electricity system in earlier studies.

Chapter 7, Empirical findings outline the findings received from the qualitative interviews, reports and the quantitative survey. Chapter six and seven lay the foundation of the analysis in the following chapters.

Chapter 8, Analysis and discussion combines the qualitative and quantitative findings and assesses the findings to the theoretical framework.

Chapter 9, Conclusion summarises the findings of the study and draws a conclusion about the value-creating potential of blockchain in the future Swedish electricity system.

Chapter10, Proposed future works ends the study by proposing subjects that would be interesting to analyse and investigate further.

2 The electricity system Chapter 2 presents the current state of the electricity system in Sweden and describes the most vital parts and functions of the system. The chapter ends with an outlook of future trends and predictions.

2.1 Electricity value chain The electricity value chain can be simplified into six consecutive processes: Generation, Trading, Transmission, Distribution, Metering and lastly Consumption. The three central exchange processes in the electric value chain are: Physical flow (electricity/power), Information flow and Monetary flow. As seen in Figure 2, the physical flow travels downstream while the monetary flow travels upstream. The physical flow and the value chain begin with the generation of electricity, where electricity flows into the grid from electricity generators. This is mainly done by large energy producers that feed electricity into the national transmission grid. Generation can also take place in smaller scales at the distribution level, for example, through wind farms, heat powerplants and solar panels. The transportation of electricity runs via the transmission and distribution grid, supplying consumers with electricity. The transmission system operator (TSO) and distribution system operators (DSO) are responsible for respective transportation of electricity from the source of generation to the end consumer; consequently, they are liable to cover power losses if they occur. Both the TSO and DSOs also have a metering responsibility, which means that they must measure consumption and production from all the consumers and producers that are connected to their grid (Söder & Amelin, 2011).

Electricity suppliers deliver electricity to the end-customer via the grid. They can either produce and later sell the electricity themselves to their end-customers, or act as retailers and buy electricity from the producers and then sell it to their end-customer. The end-customer is free to choose electricity supplier where the choice is based on; 1) what prices the suppliers are offering (fixed vs variable) and 2) the level of electricity prices or the type of electricity (green vs grey). Electricity suppliers consequently act as a link between production and consumption

14 and thus making monetary flow move inversely to the electricity in the value chain (Amber, 2017). Historically, electricity and monetary flows have always moved linearly and one- directional, as Figure 2 indicates.

Figure 2: Electricity value chain (modified from (Edeland and Mörk, 2018))

2.2 Electricity market The objective of electricity trading is to warrant that consumers pay for the exact amount of electricity that has been consumed and that producers are economically rewarded for the electricity that they have generated. As electric energy cannot be stored in the grid (without technological solutions like batteries or hydro dams) the system always needs to have a balance between the generation and the load (where supply equals demand). Furthermore, the actors on the grid are enforced to pay grid tariffs in order to cover investment and maintenance costs on the grid.

As the electricity system, to a large extent, is operated by automatic control systems that process large volumes of transactions each second, the payments cannot be performed in real-time. To solve this, trading periods with an arbitrary length can be chosen, and for each of these periods the electricity price is fixed. In Sweden, the trade period is one hour, but the period differs between countries, in Australia, the trading period is only five minutes (IRENA, 2019a). Consequently, Sweden has 24 distinctive hourly prices of electricity (spot price in cent/kWh) divided on four different geographical price zones, resulting in 96 different spot prices per day on the electricity exchange (Söder & Amelin, 2011).

The electricity market is dynamic, and the balance between supply and demand determines the price. Various factors like weather or power plants not generating electricity to their full capacity will, consequently, impact the price. About 85% of all electricity that is consumed in the Nordics is traded on the energy exchange Nordpool. If the energy is not traded on an exchange, it can be bilaterally traded through brokers in what is called Over-the-Counter trading. On the energy market, there are several products where the most common are: the day-

15 ahead market, the intra-day market, the long-term market and the balancing market. For long- term contracts, financial agreements in the form of future derivates are usually traded on Nasdaq OMX (EI, 2017).

Since neither consumers nor producers beforehand know how much electricity they will consume respectively produce, it is more or less unavoidable that the electricity transferred via the grid deviates from the original forecast. These deviations are physically balanced by the system operator and automatic control systems, the deviations must, however, be accounted for economically. The responsible actor for this financial adjustment is called a balance responsible party (BRP), and all market participants on the electricity trading market must have a BRP. For residentials, it is common that their retailer takes over the balance responsibility since it would be difficult for an average residential to manage their balance (Söder & Amelin, 2011). In Figure 3, a visualisation of a simplified electricity market is visualised.

Figure 3: Electricity market (Söder & Amelin, 2011)

2.3 Transmission and Distribution The electricity grid is often divided into two categories: transmission and distribution. In Sweden, the grid is, however, divided into three hierarchical top-down categories: transmission, regional and local, where the region and local grid operates as the distribution grid. The transmission grid is connected to large energy producers and has the highest voltage, spanning between 220 kV to 400 kV and transfers the electricity long distance. The transmission grid is maintained by the Swedish TSO, Svenska kraftnät (SVK). SVK’s primary responsibilities are to secure the supply of electricity at all times and to ensure grid stabilisation (Svenska Kraftnät, 2020)

The regional grid connects the transmission grid with local grids, generation sites (like heat powerplants, hydropower stations and windfarms) and more significant electricity-intensive industries (for example paper mills, smelters and mining). The regional grid mainly operates

16 between 20 kV and 130kV and the majority of the regional grid is owned by the three DSOs: E.ON, Vattenfall and Ellevio (PWC, 2018).

The local grid transfers electricity from the regional grid to the end consumers, e.g. residentials and offices. Electricity from relatively small-scale production sites can also be transmitted via the local grid, as long as the voltage is between 20 kV and 0.4 kV. In Sweden, there are 170 DSOs, that own and operate the regional and local grids, where 129 of these companies are municipal-owned companies (IVA, 2017). DSOs are responsible for the maintenance of the regional and local grid as well as for transferring electricity from the transmission grid to the end consumer.

The term distribution grid will further be used in the report and will accordingly include both the regional and local grid.

2.4 Frequency control As electric energy cannot be stored as electricity on the grid there must always be a balance between how much electricity that is consumed (load) and generated on the power system. To secure this balance, automatic controls are used to promptly (within seconds) adjust these unbalances, and these are called primary controls. In a synchronous machine, there is rotational energy stored in the rotors connected to the turbine shaft; consequently, if the consumption of electricity increases the rotational energy will be used to compensate for the increased load. When rotational energy is used to generate energy, the rotors will lose speed, and the frequency in the machine and on the grid will fall. As long as the generation is lower than the load, the frequency will continue to drop as rotational energy is transformed into electricity. When the generation is equal to the load, i.e. there is a balance, the frequency will stabilise, thus to a lower level than the original. There is a strong correlation between the frequency and rotor speed in synchronous machines, hence do all synchronous machines have the same rotor speed and the frequency is the same over the entire synchronous grid (Söder & Amelin, 2011).

If generation would drop due to a power failure or if there is no wind (for wind turbines) the same procedure will appear, the frequency would fall and later stabilise on a lower level than the original. Subsequently, would the frequency on the grid increase if there suddenly becomes an increase in wind, or if the power load would decrease. The frequency would continue to rise until the system as a whole generates less electricity and finally generates as much electricity as the load, i.e. when supply equals the demand.

In Sweden, SVK is responsible for the frequency control, where the frequency should strive to be exactly 50 Hz. In a normal operation, the frequency spans between 49.9-50.1 Hz and the disturbance reserve spans between 49.5-49.9 Hz. If the frequency differs from 50 Hz, then SVK has a responsibility to balance the power system and purchase reserves from the BRP. These reserves can either be composed of production units or units that can adapt their electricity consumption. The BRPs ensure that electricity suppliers deliver as much electricity as their customers consume. However, the BRPs rarely succeed to balance the supply and demand for every given second, and in these situations, SVK has to intervene. To stabilise the system, SVK

17 either buys or sells electricity to create balance and the party causing the imbalance has to pay SVK for the cost of restoring the balance in what is called a balance settlement (Svenska Kraftnät, 2016).

2.5 Electricity mix The electricity generation in Sweden is primarily composed by hydro- and nuclear power, with smaller portions of wind power and waste- or biomass-fuelled combined heat and power (CHP), and a small but growing share of solar power. In 2018 the Swedish electricity mix consisted of 41% nuclear power, 39% hydropower, 10% wind power, 10% CHP and 0.3% solar power. Fossil fuels stand for a small share in the system as they are kept in reserve powerplants, primarily used to cover peak loads during cold winter days. Sweden’s electricity generation emits, therefore, relatively low measures of CO2 emissions (Swedish Energy Agency, 2020).

Figure 4: Electricity Generation in Sweden 2018 in TWh (SCB, 2020)

The electricity in Sweden is traded on NordPool Spot where it also can be traded across borders. The grid is connected to six other countries: Finland, Norway, Denmark, Poland, Germany and Lithuania, and electricity can be directly traded across all these borders and in both directions (Olsson, 2019). Sweden is, on an annual basis, a net exporter of electricity, and in 2018, the national system exported 11% of the total generated electricity (SCB, 2020).

The current electricity mix in Sweden provides a secure and flexible generation. The nuclear power plants can generate a given amount of electricity all hours of the day, and except for powerplant failures, the system knows precisely the amount of electricity that is generated each second. Generation in hydropower plants can also rapidly be adjusted to provide flexibility to the grid. If the load increases or if the wind power abates, hydropower plants can swiftly increase its production to balance the electricity system. Hydro energy can also be stored and used for later if the production from other RES is covering the demand at the moment (Huuki et al., 2020).

18 2.6 Future electricity trends Sweden’s current national grid is dimensioned for large-scale energy generation. In the 1950s the grid was expanded to handle the expansion of hydropower and in the 1980s nuclear power was introduced to the grid and today the two power sources represent approximately 80% of the total electricity generated in Sweden. Both of the two electricity sources offer large-scale generation and economies of scale at the production sites. Due to environmental and topographical conditions, hydropower is located in the northern part of Sweden, while nuclear power is situated along the coasts in the centre of the country (IVA, 2016). Future trends point out; an increase in electricity demand, increased generation from RES such as wind, solar and bio as well as decentralisation of the system and more involvement of digital tools on the grid (Lezhniuk et al., 2019).

2.6.1 Prospect of Nuclear Power In 2016 five parties in the Swedish parliament agreed upon a long-term energy policy (Energiöverenskommelsen), stating that by 2045, Sweden’s electricity production will be generated by 100% renewable sources. One of the aims from the Energiöverkommlesen was to deprecate the nuclear power in Sweden (Regeringskansliet, 2016). However, at the end of 2019, two parties of the Swedish Parliament decided to leave the agreement because of disagreements concerning the deprecating the nuclear power (Vattenfall, 2019). The agreement was, therefore terminated and, the future of nuclear power in Sweden remains unclear.

Since nuclear power contributes to such a large share of the total electricity generated today, the question of the future nuclear power existence, is of importance when predicting the future of the electricity production (SCB, 2020).

2.6.2 Decarbonisation Between 2000 and 2018, the installed wind power in Sweden increased with 7,059 MW, which is a growth by more than 2,900% (Energimyndigheten, 2019). A report conducted in 2019 by the North European Energy Perspectives Project (NEPP) and Energiföretagen Sverige modelled three future scenarios for the Swedish electricity production (Renewable centralised, Renewable decentralised and Renewable & nuclear power). The report concluded that even if Sweden would keep their nuclear powerplants, the expansion of wind power plants would continue to be needed.

19 Installed wind power in Sweden (MW) 8000

6000

4000 Installed MW

2000

0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Figure 5: Installed wind power in Sweden (Energimyndigheten, 2019)

RES, like wind power and solar PV, are enabling the transition towards a fossil-free electricity system. RES is intermittent, meaning that the system cannot control its generation since it is weather dependent. Building a system that relies on RES is, therefore, challenging as it becomes more volatile. The intermittent generation makes it more difficult to predict the supply of electricity and can result in more volatile prices. In the winter of 2020, the electricity price became negative on the electricity market Nord Pool in Sweden. During these four hours the electricity supply was superior to the demand, due to a storm, meaning that actors were paid to consume electricity (Nord Pool, 2020). Risk of lower electricity prices can, in the long term, decrease the profitability for power plants and even reduce and obstruct investments in new renewable energy plants (IVA, 2015). On the other hand, electricity prices can also become higher on cold and cloudy days when there is a lack of wind.

Increased penetration of RES in the system increases the need for flexible solutions that can support the supply of electricity when there is little production from RES. Potential flexibility solutions can either be flexible production sites (e.g. gas turbines and hydropower), energy storage (e.g. dams and batteries) or flexible demand (demand response) (NEPP, 2019).

2.6.3 Electrification The development of the use of electricity affects the Swedish electricity system in several ways and is mainly driven by industries and the electrification of the transportation sector. A forecast made by Sweco, IVL and Profu indicated that the electricity demand in Sweden will increase by 32% by the year 2045 due to the electrification trend (NEPP, 2019).

20

Table 1: Electricity demand in TWh excl. losses in different sectors in Sweden for the period 2020-2045 (NEPP, 2019)

2020 2025 2030 2035 2040 2045 Residential 22 23 24 24 24 24 Commercial 34 36 38 39 41 43 Heating 20 19 18 17 16 15 Industry 54 60 63 66 75 76 Transport 4 50 7 10 15 19 Sum 134 188 150 156 171 177

2.6.3.1 Transportation Electrification of the transport sector implies an increased number of vehicles driven by batteries or vehicles that continuously are supplied with electricity by electrified roads. Electrified roads would require new infrastructure along roads in Sweden, while development in battery-driven cars would involve an expansion of the charging infrastructure by providing the country with charging stations. With more EVs in the transport sector, the primary energy source could potentially shift from petrol and diesel to electricity, and as electricity is generated from fossil-free energy sources, the carbon emissions would reduce (Fridell et al., 2019).

2.6.3.2 Industries Sweden’s industries will also have an impact on the grid. Sweden is currently attracting foreign companies by offering possibilities to set up data centres that are supplied by cheap and fossil- free electricity. Several industries are also working on electrifying their production processes where the Hydrogen Breakthrough Ironmaking Technology-project (HYBRIT) is one of the most known. The HYBRIT-project aims to produce fossil-free steel with hydrogen, and this would increase the electricity consumption with 15 TWh/year, that is 11% of Sweden’s total electricity consumption 2018 (NEPP, 2019).

2.6.3.3 Urbanisation As can be seen in Table 1, the electricity demand for residentials will not increase vastly. Like many parts of the world, Sweden is partaking in the urbanisation trend. The population is mainly concentrated around Stockholm, Gothenburg and Malmö and their suburbs. At the end of 2018, 87% of Sweden’s population lived in an urban area, and during the last 100 years, the population in none urban areas have declined by 900,000 (SCB, 2019).

2.6.4 Digitalisation Digital technologies are becoming more relevant and integrated into several parts of society each year. In the electricity system, digital technologies can assist in several ways, including, enhanced operation; monitoring and maintenance of RES closer to real-time; implementation of novel market designs; and development of new business models. IRENA states that the three

21 digital technologies: internet of things (IoT), artificial intelligence (AI) and blockchain are among the most interesting technologies for the integration of RES (IRENA, 2019c).

In the case of blockchain, the most mentioned ability that technology can offer is the chance to create a decentralised peer-to-peer (P2P) trading system as well as storing data in an efficient, secure and transparent way. The technology has, consequently, the potential to minimise operation cost by cutting out the middleman and offering a new revenue stream for prosumers (consumers that can sell and produce their own electricity by example having a solar PV on the roof). In the next chapter, the underlying technologies of blockchain will be further analysed and described.

3 Blockchain Chapter 3 describes the concept of blockchain technology and how the technology is constructed. The chapter will present four concepts Shared ledger, Permissions, Cryptography and Consensus.

Blockchain is based on distributed ledger technology (DLT) which is a distributed database system where all components in a network have access to the records being stored on the distributed database. The benefit of having a decentralised distributed system is that there is no single point of failure. If one component fails, the database of records can still be accessed from another component in the network. Also, because there is no single component in control of the network, it allows for several parties to participate in the network. A distributed database is not a new concept but what differentiates blockchain from other distributed databases is that it allows independent participants who do not trust each other to make reliable and consistent agreements over a record of events (Hileman & Rauchs, 2017). However, to further understand what blockchain is and how it works, one must understand the key concepts.

There are many different ways to both label and categorise the key concepts. Nevertheless, through an extensive literature review of 20 published articles, reports and corporate presentations, the key concepts of blockchain can be categorised into Shared ledger, Permissions, Cryptography and Consensus.

3.1 Shared ledger As mentioned previously, blockchain is a distributed database where everyone has access to the database. One of the main concepts of blockchain is, therefore, the shared ledger. The traditional way of keeping ledgers is that every participant in a network keeps their own ledger. When something needs to be updated, everyone does it separately.

For example, a company that sells wood will sell 200 meters of wood to a carpenter. The wood company will then record minus 200 meters of wood in their ledger while the carpenter will now record, in his ledger, that he has plus 200 meters of wood in his storage. If the wood company and the carpenter trust each other, then this system works relatively well. However, if the carpenter would decide to only enter 150 meters in his ledger and then lie and say he

22 never received the other 50 meters of wood and require a refund, then there is no way for the wood company to say that what the carpenter recorded in his ledger is not valid. There is no single source of truth. Sometimes the case does not have to be that someone lied, but maybe someone accidentally only recorded 150 meters of wood in the ledger. Errors like this happen all the time; nevertheless, blockchain diminishes errors like this.

When a transaction is made in the blockchain network, every node receives a copy of the transaction. A node can be seen as a participant on the network. The node is any computer or device that is connected to the network. The transaction is then added to the block with other transactions made at the same time and added to the blockchain, which is the ledger where all transactions are stored. Because every node receives a copy of the transaction, every participant has the exact same information. Also, because of the way that the blocks are chained together, the blocks cannot be tampered with, and since everyone has access to the same ledger, this enables a single source of truth. The shared ledger concept also minimises costs and transaction time because everyone receives the updated ledger as soon as the transaction is made, participants do not have to wait for information to be passed on through intermediaries as they receive the information directly.

Nonetheless, sometimes transactions might include some sensitive information that not everyone should have access to because of various reasons. This is where the second concept of blockchain is introduced, Permissions.

3.2 Permissions Permissions are the concept that allows appropriate visibility for each participant (KPMG, 2018). For example, permissions can be expanded for certain participants on the network, such as auditors who might have to view more information (Gupta, 2020). This can be done, through cryptography, which is the third concept of blockchain. This will further be discussed in section 3.3.

Blockchain can either be permissionless or permissioned, as well as private or public. Permissionless blockchains allow anyone to participate on the network, and therefore allows anyone to both add and validate entries to the shared ledger, e.g. blockchain. A permissioned blockchain, on the other hand, only allows selected participants to make changes to the shared ledger (Hileman & Rauchs, 2017). There are advantages with both the different permissions; however, permissioned blockchains are more effective at managing the consistency of the data that is added to the blockchain. While permission and permissionless relates to who can make changes on the shared ledger, private and public blockchain relates to who can join the network. In a private blockchain, not anyone can join, and the participants know each other. In public blockchains, anyone is allowed to join the network, and here cryptographic methods are applied to join the network. With these cryptographic methods, participants can both enter the network and record transactions anonymously (Saberi et al., 2019).

The different permissions can, therefore, be categorised into four different permissions: permissioned public, permissioned private, permissionless public and permissionless private.

23 Nonetheless, the most utilised permissions to today are the private permissioned blockchains which are best suited for businesses, and the public permissionless blockchain, where the most famous is Bitcoin.

3.3 Cryptography As mentioned in the previous sector, permissions use cryptographic methods to manage appropriate visibility for each participant. However, cryptography is also the method used to link the blocks together, which enables an almost immutable ledger. The primary tool behind these cryptographic methods is the cryptographic hash function (Martínez et al., 2020).

3.3.1 Cryptographic hash function A cryptographic hash function is a tool that is used to verify data integrity. It can be described as a function that can transform any block of binary data into another fixed-size binary block. The output of the transformation is called a hash. The initial use of hashes was that they were more efficient since the calculations used were much simpler and required less bandwidth when sending data. However, additional use of hash functions is to protect information and its integrity (Martínez et al., 2020).

Figure 6: Cryptographic hash function

3.3.2 Asymmetric cryptography Asymmetric cryptography, also known as public-key cryptography, consists of an encryption function and a decryption function so that the participants in the network can encrypt and decrypt certain information (Martínez et al., 2020). This method enables that appropriate information is visible for each participant.

To enable this process, each participant has one public key and one private key. The public key is known publicly and allows anyone to encrypt the information for the participant that will receive it. The private key, which is only known by the participant who owns it, is what permits the receiver to decrypt the encrypted information (ibid). As the private key is connected to the public key, one can send information to the public key, which therefore only can be viewed with the private key.

24

Figure 7: Asymmetric cryptography

Asymmetric cryptography can also be used for digital signatures where the message is not encrypted, but the private key of A is used to sign a message that is then verified by its public key so that B knows that this message is indeed from A.

3.3.3 Merkle tree As mentioned previously, blocks are linked together where each block has an associated hash. The blocks are linked together by a so-called hash pointer, which contains the data of the previous block it addresses. Consequently, each hash pointer contains the state of the entire blockchain. This system is what enables an immutable blockchain. However, storing hashes can be very complex and inefficient; therefore one must use a method that allows hash pointers to work more efficiently, this is done through Merkle trees (Martínez et al., 2020).

Merkle trees are, of descending order, binary trees. Each internal two parent nodes, which contain arbitrary data, have one node child. The child node represents the output of a hash function where the input contains each parent’s data. Therefore, if one wants to change previous data, then this is not possible as they would have to change all previous data for the system to accept the new data input (ibid).

3.4 Consensus Whilst Permissions eradicates the issue of privacy in the network and Cryptography enables both privacy and security, the concept Consensus relates to the issue of knowing that the entries added to the ledger are valid information. This is done through various consensus mechanisms. The consensus mechanism confirms that each participant’s view of the network and what should be recorded on the ledger is the same as all the other participants in the network.

Traditional systems for sending a transaction often requires an intermediate to validate that the transaction is correct. This can be both inefficient and expensive as intermediaries often require a certain service fee (Gupta, 2020). In a blockchain, no intermediaries are needed as all

25 participants use consensus, i.e. come to an agreement, on which transactions are valid. Another key property of the blockchain system is that participants do not trust each other, and therefore the consensus protocol must tolerate the Byzantine failures2 (Dinh et al., 2018). There are several different algorithms that solve the Byzantine problems that work as consensus mechanisms. Some of the most common consensus algorithms are presented below with a brief explanation.

3.4.1 Proof of Work (PoW) PoW is one of the most mentioned consensus algorithms as it is the one used in Bitcoin. However, it has recently received a considerable amount of bad publicity as the mechanism consumes much energy. PoW necessitates solving of complicated computational processes, like finding hashes with specific patterns (Casino et al., 2019). PoW is useful for a public network; however, not for business.

3.4.2 Proof of Stake (PoS) PoS is a less energy-consuming consensus mechanism. More and more blockchains are moving towards using PoS because it uses less energy and improves scalability. In PoS, validators must hold a specific percentage of the networks total value to validate a transaction (Gupta, 2020). PoS makes it expensive to execute attacks and therefore increases the protection of the network.

3.4.3 Proof of Authority (PoA) PoA networks provide one or more participants with specific permission to make changes in the blockchain. The network participants, therefore, put their trust into these approved nodes. When a block is added it is then accepted if the majority of approved nodes certifies the block. New validators can be added to the network by being voted in (Andoni et al., 2019a)

3.4.4 Practical Byzantine Fault Tolerance (PBFT) PBFT is an algorithm that is created to settle disputes among participants when one participant gives different outputs from the other participants. The PBFT comes from the Byzantine Generals Problem, which explains when the actors of a system must agree on a certain strategy to prevent a catastrophe, however, some actors might not be reliable. The challenge is to ensure that loyal actors reach consensus on which strategy to choose and prevent that a minor number of traitors causes them to choose a bad strategy (Andoni et al., 2019a).

3.5 Blockchain in practice As mentioned previously, all of these concepts define blockchain. Nonetheless, to understand how they all work together, one needs to understand how blockchain works in practice. This study has divided it into four different steps.

2 The Byzantine fault is a state of a computer system, where components of the system might fail, but the information of if the components have failed or not is imperfect.

26 1. There are several participants or nodes on the network, and multiple nodes transact on the network. All the transactions being exchanged are recorded with information such as the transaction’s date, time, the receiver of the transaction and the amount of what is being exchanged. Depending on the type of transaction, cryptography is used to encrypt the information of the transaction. Because of the shared ledger, the copy of the transaction can be sent directly to all nodes on the network. Depending on the permissions, different participants will be able to have access to various amounts of information.

Figure 8: Transaction information.

2. All the transactions created at this certain point of time are batched together into a time- stamped block.

Figure 9: Transactions to blocks.

27 3. The block of transactions is then broadcasted to the network to be verified and validated. It is validated and verified depending on the consensus mechanism for that network.

Figure 10: Validation.

4. After the block is verified and validated, it is added in a linear chronicle order to the chain. The block then receives the hash of the previous block and is linked to the chain. The transaction is now completed. Each node is then provided with an updated copy of the new ledger.

Figure 11: Chain of blocks.

The blockchain technology landscape can be further categorised into three different layers; 1) protocol layer, 2) network layer and 3) application layer (Platt, 2017). The protocol layer is the bottom layer and where the computer code lies. This can be compared to operating systems like iOS and Android. The network layer is the second layer and where the permissions lie; hence, if a blockchain is private, public, permissioned or permissionless, this is decided. This layer can be compared to the digital distribution platforms such as iTunes App Store and Play store. The

28 top layer is the application layer and where the blockchain system becomes useful. Some of the most common applications of blockchain technology are digital assets such as cryptocurrencies, smart contracts and digital identities.

3.6 Smart Contracts Smart contracts are one of the most used applications of blockchain technology. Smart contracts enable to automatically execute transactions if the right conditions between two parties are met (Andoni et al., 2019a). The self-executing script resides on the chain and has a specific address. The smart contract is then triggered by addressing a transaction to it, which then causes the contract to be automatically and independently executed in a prescribed manner on the nodes that were included according to the data in the triggering transaction (Christidis & Devetsikiotis, 2016).

Smart contracts can enable more efficient financial arrangements to ensure that funds are available and that payments are made (Hofmann et al., 2017). Other benefits include removing intermediaries and reducing contracting, transacting, enforcement and compliance costs as the contracts are tamper-proof and self-enforceable (Andoni et al., 2019a).

3.7 Digital Identities A digital identity is like an online persona which is created over a time period through the use of different online platforms, such as social media and text messaging (Shavers & Bair, 2016). For example, an e-mail address is one digital identity that is connected to a lot of online information that creates a unique online identity. Issues concerning digital identities have recently grown as numbers of devices and users increase, but also because of the complications to create secure digital identities (Rodrigues et al., 2018). Digital identities are today being managed by different services which are being stored across various centralised databases. This creates an insecure system as several people tend to use the same password and usernames for several services. Furthermore, these databases where the identities are being stored are often not resilient to attacks, as it is enough to attack that single database to acquire all digital identities (ibid.).

However, digital identities based on blockchain technology can decrease the risk of security issues as it can decentralise the ownership of the identity, so that the owner itself can be responsible for managing its own identity. Decentralisation also makes it more difficult for hackers to steal large numbers of identities as they would have to go to each database to acquire a single identity. The blockchain technology also reduces the risk of someone corrupting the information connected to the digital identity as it is stored on the immutable and transparent chain. The public-private key pair, described in Section 3.3.2 is often used to represent the identities (Rodrigues et al., 2018)

4 Theoretical framework Chapter 4 presents an explanation of the theoretical framework chosen for the study. As the study focuses on a societal change where technology plays a great role, the multi-level

29 perspective was chosen, as the framework aims to understand how technological transitions occur.

4.1 Multi-Level Perspective Framework The multi-level perspective (MLP) framework is an analytical tool that aims to understand how technological transitions happen as well as the interactions between new innovations, actors and environments. Within the framework, three concepts are defined; 1) sociotechnical (ST) landscape 2) regimes and 3) niches. The levels are sort of nested within each other, where the regime is nested in the ST landscape, and the niche is embedded in the regime (Geels, 2002).

4.2 Sociotechnical landscape The ST landscape is the macro level and based on slowly changing external factors, keeping certain gradient for the trajectories. The ST landscape consists of the deep structural trends in society, where the technological trajectories are usually situated. The word “landscape” is chosen to represent the material context and the hardness of society, where the ST landscape consists of a set of factors such as oil prices, economic growth, emigration, environmental issues and wars. The ST landscape concerns external factors that impact the regimes and niches. Furthermore, the ST-landscape is also highly resistant to change (Geels, 2002).

4.3 Regimes A technological regime is referred to the set of rules that decide different technological processes such as defining problems, production process, characteristics of products, handling persons and artefacts, procedures and skills. All of these various structures mark the institutions and infrastructures. Regime concerns the rules that constrain but also enable activities within society. The meso-level of regimes is where the technical trajectories occur and account for the steadiness of the existing technological evolvement. Regimes create incremental innovations, whilst niches create radical innovations (Rip et al., 1998).

4.4 Niches The micro-level of the niches is where radical innovations are generated and developed. Niches need to be protected from the normal market selection as they work as incubation rooms for radical novelties (Schot, 1998).

These novelties emerge in niches because of specific issues, rules and capabilities that exist in the current landscape and regime. Niches are vital for technological transitions as they provide a certain location for the learning process and create space to build social connections that support innovations. Radical technology often have low technical performance, expensive cumbersome and would, therefore, have a hard time to develop in the existing regime (Geels, 2002)

The importance of an MLP is to understand that the success of new technology is not only affected by the development process in the niche but also changes in the other levels of the ST landscape and regime. Developments in the ST landscape can also pressure the regime to

30 change, hence, creating an opening for new technologies (Geels, 2002). It is the alignment of the changes that determine if a regime will shift or not (Kemp et al., 2001).

4.5 Transition pathways The MLP framework presented by Geels (2002) has subsequently been altered in two studies by Geels and Schot, (2007) and Geels et al., (2016) to further understand the various kinds of alignment that causes different transition pathways. The first study focused on a typology that was constructed based on a combination between the timing and the nature of interactions of the multi-levels (Geels & Schot, 2007). However, the second study aimed to develop a more local logic of the transition pathways typology and decided, therefore, to differentiate and reformulate the current pathways. This study will use the second study (Geels et al., 2016) as a framework. The reformulated pathways use the three conceptual categories from (Geels, 2004) 1) actors and social-groups 2) rules and institutions and 3) technologies and wider socio- technical systems. This resulted in the following reformulated and differentiated transition pathways.

4.5.1 Substitution Technological substitutions happen when niche innovations are developed because of pressure from the landscape. There are two different patterns to follow on the substitution pathway. Either there is a limited institutional change which implies that radical innovations must compete in the current environment leading to new entrants struggling against incumbent firms or creation of new institution and rules benefit the niche innovations so that various new entrants replace incumbents (Geels et al., 2016).

4.5.2 Transformation The transformation pathway is when the landscape puts pressure amongst incumbent actors to progressively change the regime because niche innovations are not sufficient enough. Incumbents may, therefore, have to reorient themselves and not only make incremental changes but focus on radical innovations (Geels et al., 2016). The degrees of institutional change is associated with the depth of the reorientation (Geels & Penna, 2015), depending on the degree, institutional pressure can create struggles between industry actors and policymakers (Smink et al., 2015).

4.5.3 Reconfiguration Reconfiguration is when new alliances between incumbents and new entrants occur to change the architecture of the system. Changes go from being limited to more substantial as actors meet new problems that make them see new opportunities and perhaps change their goals. The technology is usually everything from initial add-ons to combinations of current and new technologies; however, these new technologies might create more challenges and opportunities resulting in “innovation cascades” where systems need to be reconfigured (Geels et al., 2016).

31 4.5.4 De-alignment and re-alignment The de-alignment and re-alignment pathway occur when landscape pressure is so major that incumbent firms’ breakdown and new opportunities for new actors are created. The fall of old technologies generates space for new technologies that compete with each other. Because of shock, institutions are disrupted and, after a while, replaced (Geels et al., 2016).

5 Methodology This chapter presents the chosen methodology that has been applied in this study and includes descriptions of both research purpose and approach. Additionally, this chapter describes the chosen methods for data collection and analysis. At the end of this chapter, a discussion about the quality of the validity and reliability of the research is conducted.

5.1 Research purpose There are four kinds of research designs to be considered when conducting a study: explanatory, descriptive, exploratory or evaluative. Depending on the study, the design can also be a combination of these methods, and the choice of research design should be based on the nature of the analysis and research question (M. Saunders, 2019). When the favoured research process is to gain a deeper understanding in a research area, at the same time as the examined area is unexplored, an exploratory research design is purposed (Blomkvist & Hallin, 2015). As the purpose of this thesis is to gain additional insights about the future Swedish electricity system and the use of blockchain, it was chosen to apply an exploratory research design.

Furthermore, the thesis aims to evaluate if blockchain can be value-creating in the future electricity system, and when determining whether a specific artefact is useable, useful and desirable, an evaluative research design is proposed. Nevertheless, does an evaluative research design usually involves testing of prototypes, products and interfaces by real potential users of a system, which this thesis does not (Hanington & Martin, 2019). Additionally, blockchain is such a novel technology and this study does not evaluate a specific use-case and its viability. The aim is rather to provide a groundwork for later studies, so it would not have been feasible to operate either a descriptive nor an exploratory research design, since these aims to deliver conclusive findings in a topic (Borrego et al., 2009). Consequently, it was decided to only apply an exploratory research design.

5.2 Research approach The research approach is decided by the nature of the research process and can be either abductive, deductive or inductive. A deductive approach is mainly used in quantitative researches since it develops a hypothesis based on existing theory and then tests the hypothesis via a research strategy. In other words, the deductive reasoning approach focuses on deducting conclusions from propositions or premises. While deduction initiates the research with an expected pattern and then test is against observation, induction starts with observations and from these observations seeks to find a pattern (Gulati, 2009). Generally, an inductive research approach is associated with qualitative methods of data gathering and analysis. In inductive reasoning, a researcher tends to acquire empirical generalisations and from the generalisations

32 identify preliminary relationships that develop throughout the research as the knowledge increases. At the initial stage of the research, no hypothesis can be found, and the nature of the findings are not clear until the research process is completed. The findings drawn from inductive reasoning are untested as the research process aims to explore a phenomenon or to construct a conceptual framework (M. Saunders, 2019). The abductive research process can be viewed as a combination of deductive and inductive reasoning as it adopts a pragmatic perspective and seeks to gain the most likely explanation for an observation (Flick, 2017).

The research of this thesis can be divided into two segments; the first aims to discover how the future Swedish electricity system will be constructed and what challenges and opportunities it is facing. The second segment aims to understand the novel technology Blockchain, and to explore if and where it can be value-creating in the future electricity system. Accordingly, do the first research begin with an undefined hypothesis, and by observing patterns of similarities and premises in interviews and literature, the goal is to reach a theoretic conclusion of how the electricity system will develop, which is managed via inductive reasoning. It can, furthermore, be discussed if the latter research process takes on a deductive or an inductive approach. When identifying the characteristics of blockchain, inducting reasoning will be applied, although when examining if blockchain can create value, it will proceed from existing theory. The thesis will, nevertheless, not test the hypothesis and, consequently, is the deductive approach not fully utilised. Taking this into consideration, a combination of inductive and deductive reasoning is used.

5.3 Literature review Two literature reviews have been conducted in this thesis. The first review included 20 published articles, reports and corporate presentations about blockchain. The goal of this literature review was to create an understanding of blockchain and its mechanisms.

The second review was a systematic literature review that was conducted on the Web of Science to understand how blockchain has been applied to the electricity system in previously published reports. The literature review was performed with two criteria: • Include the keyword “Blockchain” in combination with either “electricity”, “energy” or “grid”. • Be published 2019 or later.

The search resulted in 131 papers, but after reading the titles, it was only 94 of these reports that were relevant to include in the literature review. The review resulted in a categorising of each of the papers in one of nine categories where Decentralised energy trading was the most researched category. The two completed literature reviews can be found in sections 3. Blockchain, and 6. Findings from literature review.

5.4 Data collection In this study, the data has throughout the research been collected from both qualitative and quantitative methods. Considering the nature of the study and that empirical data was gathered

33 from numerous qualitative methods and one quantitative method, the thesis can be seen as both using a multi-method research (multiple qualitative methods) and a mix-method research (qualitative and quantitative methods) (Hesse-Biber & Johnson, 2015). Multi-method research enables qualitative researchers to study reasonably complex phenomena or entities in a holistic way that still retains meaning. Rather than classifying the research into individual series of observations or focus groups, a multi-method qualitative study allows the researcher to gain a holistic understanding of a complex subject (Williams, 2019). Furthermore, the method is suitable when the issues and concepts are unknown, and when previous studies have not created a theoretical framework (M. Saunders, 2019). On the other hand, does the mixed method use both qualitative and quantitative data with the aim to provide a better understanding of a complex research question than either approach would do alone (Baran & Jones, 2016).

5.4.1 Qualitative data The qualitative data was gathered from both primary and secondary sources, where the secondary data was gathered from both text and non-text sources, such as webinars, pre- recorded presentations, articles and grey literature, to gain a greater understanding in, especially blockchain and its appliances. The primary data was, on the other hand, gathered from exploratory discussions, semi-structured interviews and online seminars. Considering the novelty and the complexity of the subject, it was considered that interviews and discussions would be a suitable method for data collection since it provides high-quality data (Qu & Dumay, 2011).

The interviews were chosen to be semi-constructed with open-ended questions. One of the main advantages of semi-structured interviews is that it enables reciprocity between the interviewer and the interviewee. This method also enables the interviewer to ask follow-up questions based on the responses, and if it emerges that an interviewer has immense knowledge in one specific area of a subject, the interviewer is free to put emphasises on that area (Kallio et al., 2016).

The interview guide of this study consisted of several questions that shed light on both the future electricity system and blockchain. The questions were open-ended to encourage the interviewee to discuss the subject further, and when it was plausible, discussions about the study’s findings so far were discussed. Depending on the flow of the conversation, the questions were asked in various order, and when interviewing, for example, blockchain experts, more time was spent on the blockchain-questions.

In total, 29 participants were interviewed, and the interviewees were carefully chosen to both ensure their expertise but also to capture a broad spectrum of knowledge as possible to get a holistic view. In figure 12, there is a visual presentation of how many participants from each segment that were interviewed. The interviewees were conducted in either Swedish or English, depending on the language knowledge of the participant. All interviews besides two were either face-to-face or via a link, and the two others were carried out in written form via email. After asking for permission, the interviews were audio-recorded to enable a more free-flowing conversation but also to function as a back-up that could be listened to afterwards.

34

Figure 12: Distribution of interviewees.

The data collected from the interviews contributed to a deeper understanding of the subject and discussions with the interviewees has given the study aspects and perspectives that cannot be found in the literature. Consequently, have the interviews contributed to both creating a research question but also in defining both challenges and opportunities with blockchain in the future electricity system.

5.4.2 Quantitative data Since the interviews were held with experts that had knowledge in specific parts of the study’s subject, spanning from blockchain in finance to regulations in the transmission grid, the discussions tended to focus on the area where the participant had the most knowledge. Subsequently, did some of the interviewees lack knowledge about blockchain. To gather consistent and quantitative data from the interviews that contained information about both blockchain and the electricity system it was chosen to give the majority of the interviewees a standardised survey. The survey contained six numerical questions and one categorical question (Dawson, 2016). The numerical questions contained characteristics of blockchain where the participant was to answer a statement about the electricity system with a ranking number from one to five, where five would favour a blockchain characteristic, for example, transparency (see figure 13 below for the transparency question). The categorical question asked the participant to mark what technologies they thought would be a part of the future electricity system: AI, IoT, Blockchain or Other, where the participant could mark how many alternatives they desired and specify the technology if “Other” was chosen. The result of the survey can be found in section 7.2 Quantitative findings.

Figure 13: Example of a survey question.

35 5.5 Data analysis Qualitative data is non-numeric information such as literature, interview transcripts/recordings and notes. When applying qualitative methods, the data gathered usually lacks standardisation as well as explanations and thoroughness (M. Saunders, 2019). There is, consequently, a need for categorising and analysing the data gathered when applying a qualitative method. The analysis made in this study was based on a content analyse, meaning that the interviews were categorised, summarised and tabulated. This was made in three steps, where the first step included summarising the interview and identifying keywords to get a comprehensive understanding of the data. The next step included identifying patterns, relationships and themes when scanning the summarisations in search for phrase repetitions and commonly used words, themes and answers. The last step was to summarise the data and link the research findings to the research aim and objectives (Baran & Jones, 2016). It is thus worth mentioning that the analysis of the interviews was an iterative process, where the interviews were analysed directly after the meetings to continually gain a deeper understanding in the subject and understand where the study was heading.

Data collection

1. Summarise interview and identify keywords

2. Identify patterns, relationships and themes

3. Link to research question

Figure 14: Overlapping steps in qualitative data analysis (modified from (Collis & Hussey, 2014).

The analysis of the quantitative data was used to understand if and where the characteristics of blockchain would be suitable for the electricity system. The idea with the survey was also to analyse the participants approach towards blockchain versus the approach towards the characteristics of blockchain as some of the participants were unfamiliar with blockchain. The questions in the survey were relatively widespread, (how does one, for example, rank how much benefit the power system will gain in getting more transparent?), and therefore, it was chosen to only consider the mean value of each question and the response range (Baran & Jones, 2016).

When the analysis of the data was completed, an MLP-analysis was applied to the findings to grasp if, how and where blockchain best can create value in the future electricity system in Sweden.

5.6 Research quality, validity & reliability To ensure validity and reliability in the study, the four dimensions: internal validity, construct validity, external validity and reliability were adapted (Gibbert et al., 2008).

36 5.6.1 Internal validity Internal validity refers to the relationships between the result and variables, meaning that the researcher needs to present plausible arguments and logical reasoning that is compelling enough to defend the conclusion of the research. This dimension, therefore, emphasises the data analysis, and since a majority of this study applies interviews as the primary source, the data analyses are built upon interpretations.

The essence of a qualitative study is to comprehend and recognise patterns among words to create a meaningful representation without compromising its dimensionality and richness. Since qualitative data does not deal with numerical data or statistics, the research handles with data that is not strictly objective and therefore has to be interpreted. This can lead to biases and subjectivity, which in some cases are definite or even inevitable. This subjectivity can thus, decrease the quality and the trustworthiness of the qualitative research result since both the interviewer and the interview can have known or unknown agendas and biases, and consequently create faulty conclusions (Leung, 2015). To minimise that these interpretations are faulty, pattern matching of the interviews were applied, and the actual words of the participant were written down and then matched with other interviews to identify common contexts and findings. Internal validity is best suited for explanatory studies, where a known phenomenon is studied. A researcher can, in the initial phase then predict the study's outcome. The prediction can, moreover, be compared to the outcome of the research to examine if the conclusion has plausible arguments. Given the nature of this study, internal validity cannot be guaranteed, even if it can be maximised (M. Saunders, 2019).

5.6.2 Construct validity The “construct validity” procedure tests if the initial problem of a study, in fact, was investigated in the end, e.g. was the researched subject in line with the conclusion (Gibbert et al., 2008). Seeing that the nature of the study is both exploratory and inductive, at the same time as interviews were the primary source of the data gathering, this dimension may be at risk.

To construct validity, two measures have been crystallised in previous literature: create a transparent chain of evidence from research-to-conclusion and triangulation (ibid). The research conducted in this study followed the same research domain (blockchain in the Swedish electricity system) for all interviews. Besides, conclusions drawn from interviews have been accounted to create a clear chain of reasoning, from problem formulation to conclusion. Triangulation refers to the use of different data collection strategies and sources. In the research process, 29 qualitative interviews were conducted, but the participants were also given a survey to generate quantitative data. Furthermore, has two extensive literature reviews been conducted. The study has, consequently, tried to triangulate the data and adopted different angles from which the research domain has been analysed.

5.6.3 External validity External validity, or generalisability is to which extent the study can be replicated on other markets and contexts (Gibbert et al., 2008). This study investigates a particular subject in a particular future environment, hence does the generalisability decrease. The aim of the thesis

37 is, however, to both examine how the future electricity system in Sweden will be composed and if the characteristics of blockchain can create value in that environment. The study is, accordingly, aiming at creating a deeper understanding of both blockchain and the electricity system. It can, correspondingly, be argued that the thesis has provided information that has the potential to be useful when looking at one of these subjects independently.

5.6.4 Reliability Reliability in research refers to the chance that a study can be recreated by another researcher by following the same procedures as the study. Since mainly semi-constructed interviews were conducted to gather primary sources in this thesis, it would be challenging for another researcher to have identical interviews as this study. This can overall be seen as a large disadvantage when conducting semi-structured interviews. Given the uncertainty and novelty of this study, the strengths and advantages of semi-structured interviews can thus undermine the disadvantages (M. Saunders, 2019).

In the thesis, it was also chosen to anonymise the participants of the interviews by disguising the personal identities: names and companies. The interviewees have shared business models, market forecasts, personal thoughts about both the current and the future electricity system and their personal view of blockchain. Since some of this information is sensitive, while others are personal opinions and not representative for the company where the participant is working, it was decided that it is ethical towards the interviewees to anonymise the identities. To maintain reliability for the thesis, the interviewees are, however, represented by title and what sort of company they are working at (B. Saunders et al., 2015). See appendix I for the full list of interviewees.

6 Findings from literature review Chapter 6 presents the finding from the literature review. Two literature reviews were conducted. The first section of the chapter will present the value characteristics and limitations of blockchain and the last section will present the applications of blockchain in the electricity system.

6.1 Value characteristics and issues of blockchain As mentioned previously, blockchain was, in previous years, overhyped resulting in difficulties to know if what blockchain promised in 2016 and 2017 is true yet today. However, as more projects and research on blockchain have been materialised, the values and issues of blockchain have become defined more clearly. Nevertheless, it is important to note that blockchain is still a relatively immature technology in constant development. To understand the values and limitations of blockchain, articles and reports provided by KPMG where examined. The year of the published of the reports and articles were limited to 2018 and forwards in order to receive the most relevant and accurate information.

The four concepts described in Chapter 3, Shared Ledger, Permissions, Cryptography and Consensus enables blockchain to provide a system with several valuable characteristics, hence

38 the success of the technology. Some of the key valuable characteristics of blockchain are; 1) transparency 2) decentralisation 3) immutability 4) traceability and 5) P2P interaction.

The shared ledger in blockchain technology ensures a transparent system. Transparency is key in many businesses as it ensures entities and customers of the true value of an item (Saberi et al., 2019). Lack of transparency in businesses can hinder efficient transactions of information, at the same time as increased transparency enables more equal and reliable decisions as all participants share the same information (Glomann et al., 2020). However, sometimes privacy is needed in case of highly sensitive transactions, e.g. governmental records, this can nevertheless be solved with the use of cryptography and the various permissions (Dinh et al., 2018).

Transparency and immutability also assist in reducing human errors and the need for manual involvement when there is inconsistent data. The immutability simplifies the process of recording transactions and assets as no participant can alter the transaction after it has been recorded due to the way the blocks are linked in the chain, as well as ensuring a secure and reliable system (Gupta, 2020). The immutability in itself facilitates the next valuable characteristic which is traceability. Traceability is central in businesses, such as supply chain management, as it can indicate where faults are made as well as assuring that fair and proper work has been conducted (Saberi et al., 2019). As businesses become bigger, more complex and number the of intermediaries increases, traceability becomes critical to ensure an efficient system and to eliminate costs of complexity (Gupta, 2020). Immutability and traceability is made possible by the structure of how the blocks are linked together on the chain by cryptography.

Transparency, traceability and immutability all enable a secure decentralised system which eradicates the need for an intermediate. The shared ledger, as well as the permissions and consensus mechanism ensures a decentralised system where P2P interaction is enabled. Decentralisation also creates a more democratic system where not one single, central point has sole authority. P2P interaction allows participants to exchange assets and make transactions directly with each other, without requiring intermediaries, reducing both delays and costs connected to the use of intermediaries (ibid).

However, the arisen challenges with blockchain technology has created an opposition against it, resulting in several companies and institution being reluctant to further adopt the technology into their business. Some of the most common issues are; 1) scalability 2) security and 3) interoperability (Casino et al., 2019)..

One of the main issues with blockchain is scalability. Depending on the consensus mechanism and the permission, transaction times of blockchain can be long. The more transactions there are, the slower the transaction, which limits blockchain from upscaling. Whilst being one of blockchains key benefits, security is also an issue for blockchain. Firstly, there is the risk of an 51% attack which occurs when there are more malicious nodes than honest ones, resulting in the entire network being taken over by malicious attackers. Secondly, there are still numerous

39 confidentiality and privacy issues with public ledgers (ibid). The last issue is interoperability. Currently blockchain systems are not interoperable with other systems and there needs to be an agreement on format and structure for this to work efficiently (Gartner, 2018).

It is important to note that these characteristics and concepts mentioned in Section 3 are not only related to blockchain. Each concept exits on its own, but it is the combination of all these concepts that defines and builds the value of blockchain. However, if a system or business requires less than half of these concepts and characteristics, then blockchain might not be a suitable enabling technology as it is yet at times still relatively immature and complex. If a business, for example, only needs a shared ledger, then another less complicated ledger system can be used (Gupta, 2020).

6.2 Application of blockchain in the electricity sector The systematic literature review aimed to get a comprehensive overview of earlier studies as wells as investigating in which areas of the electricity system blockchain had been applied to previously. To create a structure and a categorisation of the areas, eight categories of blockchain in the electricity sector from an earlier study was used (Andoni et al., 2019b). When conducting the literature review, it was chosen to add one category, Security. In figure 16, the result of the categorising of the 94 articles can be seen, and as the figure visualises, the most studied area was decentralised energy trading.

Metering & billing 4 Security 10 General research Electric e-mobility 18 10

Green cetrificates 2 Cryptocurrencies, tokens & investment 1

IoT & asset management Grid management 11 9

Decentralised energy trading 29 Figure 15: Segmentation of blockchain in the electricity system.

In Appendix II the results of the entire literature review for each of these nine categories can be found. In summary the reports discussed various uses cases in the grid and the most frequent researched areas were: P2P-energy trading, demand response management, trust-less platforms, efficient data aggregation to enhance privacy and security problems, prosumer development, robust systems against cyber-attacks, charge management of EVs, vehicle-to-grid (V2G), complements to IoT, and renewable energy certificates (Alladi et al., 2019; Brilliantov &

40 Thurner, 2019; Diestelmeier, 2019; Kim et al., 2019; Musleh et al., 2019; Orecchini et al., 2019).

Among the benefits of blockchain in the electricity system, the most commonly mentioned characteristics were: decentralisation, transparency, immutability, authentication, efficiency, automation, trustless enablement and security (Ahl et al., 2020; Toetzer et al., 2019; Song et al., 2019).

One of few studies that applied a pragmatic overview and assessment of the attitudes towards blockchain in the electricity system was an Austria based study. Via a survey it was concluded that one-fifth of the decision-makers believe that blockchain will be a game-changer in the energy industry. However, the same survey also revealed an amount of scepticism and uncertainty regarding blockchain and established that the energy industry needs an application- oriented mindset towards blockchain to grasp the value of the technology (Toetzer et al., 2019).

7 Empirical findings In this chapter the qualitative findings from the interviews and the quantitative findings from the survey will be presented.

7.1 Qualitative findings This section presents the qualitative findings from interviews and published reports concerning future challenges and opportunities of blockchain and the electricity system in Sweden. The study primarily focuses on the data collected from the interviews. However, further information was provided through reports which were received from the interviewees.

7.1.1 The future electricity system in Sweden When conducting the data analysis of the interviews regarding the future electricity system, five main themes could be identified: Production, Consumption, Transmission/Distribution, Batteries and Market. For each of these themes, three dimensions were identified: current state, driving force of change and future prediction.

7.1.1.1 Production The main driving force of development in production is the aim to be fossil-free. For Sweden to be fossil-free, more RES needs to be integrated into the system where the majority of the future deployed power plants will be from wind power and solar power (Interview #3, 11 February 2020). The emergence of RES can in the future result in a transition for electricity production from being centralised around a few large power plants to become more decentralised with a dispersed production of electricity in Sweden. The use of distributed energy resources (DER), such as solar PV and energy storage technologies combined with demand response and information and communication technologies (ICT) enables the electricity system to be more decentralised (do Prado et al., 2019). The production would be more small scale, and the grid would go from a transmission grid with a one-directional flow to a distributed grid with bidirectional flows of electricity. This also enables prosumers,

41 electricity consumers that produce and sell electricity, by for example having solar panels on the roof. In other words, the producer and consumer of electricity could be the same person (Interview #4, 12 February 2020).

Sweden has useful fossil-free power resources today, with the majority generated from hydropower. For most of the time during the year, there is no lack of energy and the generated electricity is fossil-free (Interview #1, 6 February 2020), however, during some hours of the year, power reserves in the form of oil, coal and natural gas, are activated. These activations contribute to the CO2 emissions released by Sweden and prevent the country from being 100 percent fossil-free. The power reserves are also costly since they are constantly on standby in case extra electricity is needed, a more sustainable solution is, therefore required (Interview #7, 18 February 2020).

Additionally, the existence of nuclear power is a significant question. If nuclear powerplants were to shut down, the production from other power plants and resources have to increase. The solution will most likely be to increase the amount of wind power capacity on the grid (Interview #4, 12 February 2020). It is also expected that the installation of solar powers in Sweden will increase. If half of all the roofs in Sweden had solar panels, it would exceed the current capacity of the existing nuclear power plants (Interview #5, 12 February 2020). As the price for solar panels continues to drop the demand for solar panels will increase. One interviewee even believed that solar panels on residential rooftops, in Sweden, will become just as common as residential refrigerators (Interview #10, 27 February 2020). Today the majority of the generated electricity is provided by traditional big actors, but as small-scale RES increases, production becomes more decentralised which will cause more small actors to emerge and connect themselves to the low voltage grid (distribution grid) (Interview #3, 11 February 2020).

An increase in RES on the power system will, nevertheless, create challenges. First of all, RES is intermittent, meaning that they are dependent on the weather. The power production is, consequently, not continuous, which creates a unpredictable generation of electricity. In addition to this, wind power plants and solar panels lack inertia, implying that the production can abruptly terminate, making the system less stable. Consequently, there is a need for solutions that rapidly can store or consume an excess of energy or provide energy when there is a lack of electricity in the system; hence, the need for flexibility. Flexibility solutions on the system could be activated and support the system when the wind abates or when the sun goes down in clouds (Interview #5, 12 February 2020). Hydropower could potentially provide flexibility services; however, it is not built for it as the turbines limit how quickly and effectively the production can adjust (Interview #15, 6 March 2020).

To manage various flexibility solutions, the entire system itself must, however, become more flexible and responsive. In the current system, the Swedish TSO, SVK, has little automatic communication with wind farms which is unfortunate as the actors would benefit by receiving more real-time production data to run a more smooth power system (Interview #7, 18 February

42 2020). Open data would also enable more accurate forecasts that could help production sites to optimise their electricity generation (Interview #10, 27 February 2020).

Several interviewees mentioned the impact of the Clean Energy for all Europeans package, previously known as the Winter package, which is an energy rulebook created by the European Union (EU) to assist member states to deliver in the EU’s Paris Agreement commitments (EU, 2017). The rulebook covers five different areas; Energy performance of buildings, Renewable energy, Energy efficiency, Governance and Electricity market design. The Swedish Energy Markets Inspectorate (Energimarknadsinspektionen) were assigned to examine what actions had to be taken in order for Sweden to implement the Clean energy package (Nordström, 2020). One of the actions is to allow for more small-scale production, which can participate in both generating electricity as well as flexibility services.

Several interviewees stated that smaller electricity communities would become a part of the future electricity system, where participants can distribute, supply, consume, store and aggregate energy, as well as providing other energy services with other participants in the network (P2P-energy trading), excluding interference of big energy companies in so-called citizen energy communities (Interview #25, 18 March 2020). The community is based on open and voluntary participation and controlled by members who are either local authorities, natural persons or small businesses (Nordström, 2020). Citizen energy communities will also have the option to disconnect themselves from the grid during some parts of the day, when there is congestion on the grid, and utilise P2P energy trading (Interview #25, 18 March 2020; Interview #17, 9 March 2020).

The P2P electricity markets allow prosumers to sell and buy electricity to their neighbours directly. Prosumers will be feeding the grid back with electricity when they are generating a surplus of electricity, hence will the nature of the grid be transformed. These P2P markets rely on a consumer-centric and bottom-up perspective in enabling the consumers to choose the way and from whom they buy their electricity (Sousa et al., 2019). However, there are some challenges with P2P-energy trading, preventing the concept from operating. In Sweden, it is currently illegal for an ordinary consumer to sell electricity directly to end-users since they are not an energy retailer (Interview #29, 8 April 2020). Some interviewees also question the operation of P2P-energy trading will be a part of the future Swedish electricity system since the marginals, due to the low electricity prices, are so small, as well as there already being a well- established, effective system (Interview #21, 10 March 2020). One interviewee does not believe P2P-energy trading will be operated in Sweden with the argument that neighbours most likely will generate electricity via their solar panel during the day when the electricity demand is low (Interview #3, 11 February 2020). Other participants see potential with P2P energy trading; however, there needs to be an adjustment in taxes and subventions for the concept to be profitable. (Interview #10, 27 February 2020).

43 Table 2: Qualitative summarisation of Production.

Production

• Majority of the generated electricity is fossil-free. • Power reserves are today constituted of oil, gas, natural gas and hydro Current state power reserves. • P2P – energy trading is currently illegal in Sweden.

• Goal of being fossil-free. • Potential phase-out of nuclear power. Driving force of change • Increase in electricity consumption. • The EU Clean energy for all Europeans package.

• Increase of solar- and wind power. • Prosumers take an active role on the market. • Solar panels as common as refrigerators. • More decentralised, small scale production. Future prediction • Increase of RES will require flexibility solutions. • More communication is required between SVK and production sites for a more efficient power system. • The future of smaller energy communities in Sweden is uncertain.

7.1.1.2 Consumption Today electricity in Sweden is an essential part of people’s lives; however, many people take the electricity for granted. In the current energy system supply is met after demand. Nevertheless, a more complex system with issues of flexibility, may require that demand might have to be met after supply. Consumers will possibly consume just as much electricity, but the load will shift to other time periods of the day. However, because electricity prices tend to be relatively low in Sweden, it is unlikely to believe that consumers will shift their behaviour to only save a couple of SEKs per month. Instead, the idea is to create flexible consumers by controlling the non-behavioural consumption sources like heat-pumps and ventilation. The house can, for example, be seen as a thermic battery, and a consumer will not notice if the heat pump would shut off for an hour. By controlling multiple houses and their pumps, the aggregated consumption can operate to create flexibility on the grid. If the load exceeds the supply, the heat pumps can be cut off, hence decreasing the load and creating flexible consumers (Interview #17, 9 March 2020). This is possible through multiple enabling technologies such as batteries and automatic demand management programs (Interview #26, 19 March 2020).

Future electricity demand is rising in Sweden due to the fact that more and more devices are becoming power sourced and because electrification is one of the means to fight climate change. In Sweden the transport- and the industry sector are the two main sectors where electrification is being used to reduce the use of fossil-fuel. In the industry sector, the most known project is the HYBRIT-project, which is forecasted to nearly consume as much electricity as the EV-fleet in Sweden will do (Interview #3, 11 February 2020).

44 The increase of electricity use in the transport sector is mainly driven by the increase of EVs in both industries, i.e. trucks, and public, i.e. private cars (Interview #4, 12 February 2020). However, the charging of EVs causes challenges on the power grid as they require new charging infrastructure at local levels which currently lack the capacity to charge multiple EVs in a neighbourhood at the same time. The problem is not the amount of electricity but the shortages in distribution capacity, i.e. there are not enough power lines in the system right now that can connect and transport electricity (Interview #18, 9 March 2020). Nevertheless, this issue can be solved by either building more power lines or by efficiently controlling how and when the EVs are charging (Interview #19, 9 March 2020).

The charging of EVs is noted as one of the most discussed challenges according to the interviewees. All interviewees agreed that it is a challenge, but to what extent and what the solution should be, differs amongst the participants. One interviewee suggests that the charging could be a part of a subscription and the higher fee a customer pays, the better timeslot and the more capacity will that specific customer receive (Interview #4, 12 February 2020). Others argue that the charging must be smart, that EVs automatically should be charged when the load on the system is low or when there is an excess of supply on the network (Interview #13, 6 March 2020). More EVs on the system could also potentially provide flexibility services by utilising the vehicle battery as energy storage (Interview #14, 6 March 2020). When there is a need for more electricity on a local level, the EVs can potentially feed the grid back with electricity from the battery with V2G-solutions. Tesla cars do already have the potential to do this, even if the function is not activated today (Interview #28, 31 March 2020). Furthermore, there is a lack of standards for V2G today and car manufacturers are unwilling to reveal the required information that is needed to apply V2G, which makes it challenging to implement (Interview #14, 6 March 2020). Another challenge is on how to create incentives for customers to willingly lend their cars for V2G purposes, since the financial incentives may not be enough. Currently, 800 SEK per year could be earned by consumers if they were to sell electricity back to the grid from an EV (Interview #27, 31 March 2020).

Another issue that occurs with an increased amount of EVs and other DERs like solar panels is that the low voltage distribution grid becomes extremely unbalanced as it has to coordinate many different components. There is, accordingly, an urge for a function that can activate and coordinate small electricity consumers to make each of these works efficiently together. This emerging role is called an aggregator. In the future, aggregators could potentially control the charging of EVs, heat pumps, V2G and solar panels to provide either electricity or flexibility services. The definition of an aggregators role and responsibility is however, still undecided (Interview #2, 10 February 2020).

45 Table 3: Qualitative summarisation of consumption.

Consumption

• Demand is met after supply. Current state • Lack of power lines lead to lack of charging infrastructure. • Role and responsibility of aggregators is undefined.

• Increase of power sourced devices. Driving force of change • Electrification is the solution to decarbonising the steel industry (e.g. HYBRIT) and the transport sector.

• Consumption should become more flexible. • Flexible consumption is met by managing non-behavioural power consumption sources e.g. heat pumps, batteries and other demand response programs. • Increase of EVs e.g. trucks and private cars. Future prediction • Smart charging of EVs is required to prevent capacity shortages on the grid. • EVs could potentially be used as flexibility service providers e.g. V2G. • Low incentives for EV-owners to lend out vehicle battery. • Aggregators that activate and coordinate electricity and flexibility services.

7.1.1.3 Batteries Batteries are becoming more and more efficient, whilst simultaneously, car manufacturers are driving down the price for batteries (Interview #24, 18 March 2020; Interview #9, 26 February 2020). The interest in home batteries is also increasing as the deployment of residential solar panels grow. When the sun is shining, and the electricity prices are low, the batteries save excess energy which then can be used for a time-period when electricity prices are high. However, in Sweden, due to low electricity prices and subsidies for MWh from solar power, it is currently more profitable for residentials to sell their generated solar power directly to the grid than storing it in batteries. (Interview #4, 12 February 2020). In the future, batteries could potentially support the electricity system by providing flexibility and shifting load profiles (Interview #14, 6 March 2020). Batteries are still expensive, but as prices continue to drop, batteries become more and more common and will in the future be stationed in people’s homes, cars, charging posts, and on the grid in Sweden (Interview #9, 26 February 2020). More deployment of batteries will consequently lead to batteries becoming a vital part of the power system as they can assist in decreasing congestion and preventing power failures (Interview #11, 27 February 2020). However, it is essential to note that the means of a battery should be to decrease power peaks (i.e. peak shaving) rather than to sell back electricity to the grid when the prices are higher. As it would be inefficient and occur losses to transmit electricity via the grid to a battery and then transmit the electricity back to the grid from the battery again (Interview #19, 9 March 2020).

To capture the potential of batteries on the system, there are some challenges to overcome. First of all, network operators are not allowed to own energy storage on the grid, which could be beneficial in times of congestion or lack of electricity. Nevertheless, there is a risk that network

46 operators would use the battery for their own satisfaction and manipulate prices (Interview #7, 18 February 2020). There are however, loopholes in the legislations as they are difficult to interpret and can be unravelled by deducing them in various ways (Interview #9, 26 February 2020). The second challenge is communication and steering of battery equipment. If batteries are to be effective, they need to be implemented and utilised in a smart way. Consequently, there is a need to create automatic systems that can control how and when batteries should be used. Especially in regard to home batteries and EVs since consumers most likely will not administrate or operate the batteries themselves (Interview #7, 18 February 2020).

Table 4: Qualitative summarisation of batteries.

Batteries

• Subsidies and low electricity prices prevent Swedish households from storing excess Current state energy in home batteries.

• Car manufactures are driving down battery prices. Driving force of change • Deployment of residential solar panels is increasing the use of home batteries.

• Batteries could be used to offer flexibility services and shift load profiles. Future prediction • Batteries will be a vital part of the grid. • Smart control systems are needed for efficient battery use.

7.1.1.4 Transmission & Distribution Traditionally, electricity has been generated by a few big power plants, where the electricity flow then has been transmitted via the transmission grid and then diverged into the distribution grids and then further distributed to the consumers. The electricity flow has accordingly been one-directional where SVK has balanced the supply and demand on a national level resulting in a centralised system, which historically has been the most optimal solution. However, as the electricity demand is increasing and the production is becoming more locally dispersed and intermittent, the system faces bottlenecks and congestion issues when transporting electricity. SVK and DSOs in Sweden are hence facing a capacity problem. The problem can be solved by building more transmission and distribution lines; Sweden lacks capacity and not energy. Building new power lines are, however, capital intensive and time-consuming. Several approvals are required before one can start building new power lines. The most significant capacity shortage in Sweden is in Stockholm, and lack of capacity is currently preventing construction of residential buildings, charging infrastructure for EVs and additional wind farms (Interview #18, 9 March 2020). Apart from building new power lines, the capacity problem could also be solved via various flexibility services, even if it is a short-term solution (Interview #4, 12 February 2020).

The electricity system will most likely become more decentralised and acquire more DER. This network-form is, however, more complicated since the optimisation problems are non-linear. The system is not built for bi-directional flows, and the losses in the distribution networks are also more significant than for transmission lines (Interview #2, 10 February 2020). To create an effective system with DER, an increase in specific knowledge and competence is required

47 for both local and regional grid actors. Grid owners will change how they think about network connections as well as the tariff settings and pricing since the grid will have new abilities and be utilised in new ways (Interview #6, 14 February 2020).

DSOs have historically been relatively passive in energy operations, and the communication between the TSO and DSOs has not always been optimal. In the future, DSOs should take more responsibility for the balance of electricity on a local level as well as improving the communication with the TSOs (Interview #2, 10 February 2020). Most likely will SVK only be responsible for the frequency controlling on a national level whilst BRP and the newly introduced role balance service provider (BSP) control the balancing services on a local level (Interview #24, 18 March 2020). The BSP will deliver electricity/flexibility while the BRP will be economically responsible for balancing. Today aggregators go via a BRP when they want to sell flexibility but, in the future, the BSP will be able to deliver directly to SVK (Interview #20, 9 March 2020). It is also possible that aggregators in the future will take on the role of a BSP since they provide flexibility (Interview #12, 4 March 2020). The emergence of BSP and aggregators have the potential to change the system and the market. The exact definition and responsibilities of their roles and the structure of the new electricity market are, however, unclear (Interview #6, 14 February 2020).

Sweden’s power system already has a flexibility market; however, this is mainly outlined for large actors and more prominent power sources such as hydropower plants. Nevertheless, SVK is aware of these issues and is currently working on a different market which is more suited to smaller actors (Interview #20, 9 March 2020). An example of this is Coordinet project, which is collaboration between SVK, Vattenfall and E.ON. The project aims to provide a local flexibility market in Uppland, Gotland, Skåne and Västernorrland/Jämtlands county (Interview #9, 26 February 2020).

Another key issue with and the transition towards a more renewable and decentralised system is the need for management of variability in time (year, month, week, day, hour, minutes and seconds) and on a geographical level (nationally, regionally and locally) (Interview #9, 26 February 2020). The more the system can manage to locally balance the energy, the better. Consequently, as mentioned before, the system needs to become more flexible. Aggregators are required to gather potential flexibility sources in order to offer bigger scales of flexibility services. This entails for real-time data, accurate forecasts, coordination of small actors and a transparent system (Interview #3, 11 February 2020; Interview #19, 9 March 2020). The electricity market hub (Elmarknadshubben) is a hub created by SVK where information is to be transmitted between players in the Swedish electricity market. The electricity market hub will contain information about power plants, electricity users and metrics for production and consumption (SVK, 2020; Interview #21, 10 March 2020). The hub is not activated yet, but the communication channels and the data gathering have already been criticised for being slow, ineffective and centralised (Interview #12, 4 March 2020; Interview #17, 9 March 2020).

48 Table 5: Qualitative summarisation of Transmission/Distribution.

Transmission/ Distribution

• Capacity shortages in the network. • Sweden lacks capacity, not energy. Current state • Flexibility market only suited for larger actors and hydropower plants. • Lack of communication between TSO and DSO

Driving force of • Lack of capacity prevents construction of residential homes, charging infrastructure for EVs and change wind power farms.

• The power sector will become more decentralised and acquire more DERs. • System must work for bi-directional flows. • DSOs have to become more pro-active. Future prediction • Aggregators may take on the role as BSP. • New flexibility market suited for smaller actors. • A more flexible energy system requires high resolution data. • Elmarknadshubben is a potential provider of high-resolution data.

7.1.1.5 Market The transition of the power system will entail a change in how electricity is bought and sold. A more volatile and flexible energy system will result in more significant price signals. As capacity shortages grow and start causing congestion on the system, the price of electricity will rise. However, if the capacity of wind power on the grid grows as predicted, the electricity prices will decrease significantly on windy days. The electricity prices will, therefore, become more volatile in the future (Interview #6, 14 February 2020). Both SVK and Nordpool are aware of this issue, and by 2023 Sweden is predicted to go from one-hour long settlement periods to 15 minutes. This will settle all unbalances every 15 minutes and, consequently, give enhanced price signals for supply, demand and flexibility (Interview #11, 27 February 2020).

Sweden has currently four pricing areas, nevertheless, the issue with this is that it does not reflect the correct pricing for some areas. According to an interviewee, the ideal power system would be completely transparent, where the market would offer dynamic price signals and reflect precisely the contribution or cost of each market player (Interview #6, 14 February 2020). This system is, however, a utopia since it would be almost impossible to calculate these prices. A suggested pricing strategy for Sweden could be node3 pricing. Node pricing enables correct incentives were the supply and demand is locally where the congestion or unbalancing is occurring (Interview #24, 18 March 2020). The electricity price would, therefore, reflect the cost for one node to receive the energy. Node pricing models are still relatively difficult to calculate and require complex computation (Interview #2, 10 February 2020) (Interview #11, 27 February 2020).

As mentioned previously, the electricity prices in Sweden are currently relatively low, leading to small incentives for consumers to change their behaviour and consumption patterns.

3 A node is where the transmission net branch of to the distribution grid.

49 However, a more dynamic electricity price could give consumers financial incentives to adjust their consumption and become more responsive. A flexible demand-side could shave the peak of demand and, according to one interviewee, save 150 billion SEK of investments in grid infrastructure. This could lead to the system itself becoming more valuable than the energy, indicating that the price for flexibility could become higher than the electricity price (Interview #17, 9 March 2020). The question is, however, how to decide the price of flexibility. (Interview #10, 27 February 2020). When analysing the electricity price from an economical consumption perspective, a more volatile market would give demand response technologies increased leverage as they would react towards price signals (Interview #21, 10 March 2020). In that case, consumers could not only save money by not consuming electricity when the price is high, but they could also earn money by selling flexibility.

As mentioned previously, the new actors on the market are the aggregators, whose role is to aggregate flexibility from several small actors and consumers. Aggregators already exist but to a small extent and tend to be start-ups. Nonetheless, as the need for aggregation is growing, so is the interest for the aggregation role. Incumbent firms such as DSOs, electricity retailers and even car manufactures could potentially adopt the role as aggregators (Interview #10, 27 February 2020). However, the aggregation service will not provide enough revenue to act solely as an aggregator. The aggregator role should henceforth, be a part of a more substantial value offer where the flexibility service is included. The revenue streams of these aggregators are likewise undecided at the moment, mostly because of the lack of a capacity or flexibility market for smaller volumes and actors (Interview #22, 13 March 2020).

A future prediction is that society will start seeing energy more as a service than a commodity. New innovative technologies are creating changes in the system; however, it is more likely that it is the new innovative business models that will potentially disrupt the market. (Interview #19, 9 March 2020)

Table 6 Qualitative summarisation of the future electricity system

Market

• One-hour settlement periods. • Four national pricing areas. Current state • Low electricity prices in Sweden. • Low financial incentives to change energy behaviour.

Driving force of • Transition of the power system will require restructuring in how electricity is traded. change

• 15 min settlement periods. • More volatile electricity prices. • Volatile prices can potentially change people’s energy behaviour. Future • Flexibility services cost more than electricity services. prediction • Increased number of pricing areas. • Flexibility markets on both national and local levels. • Other industry players might adopt the aggregator role e.g. car manufactures. • Aggregators cannot solely depend on trading flexibility services.

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7.1.2 The future of blockchain in the electricity system When conducting the interviews regarding blockchain in the electricity system, various use- cases and issues were discussed. The findings from the interviews where categorised into Threats and weaknesses and Strengths and opportunities. Table 7 presents a SWOT- visualisation of the key findings.

7.1.2.1 Threats and weaknesses Whilst several interviewees had similar opinions and future prospects of the electricity system, their opinions on blockchain varied somewhat. One challenge with blockchain is that there is a lack of knowledge in blockchain technology amongst actors in the energy industry today (Interview #1, 6 February 2020). Blockchain is also considered to be an immature and ineffective technology that can be substituted with several other, more familiar technologies (Interview #10, 27 February 2020).

The energy industry is also stated to be a very traditional and conservative industry where incumbent companies prefer to choose a technology that they are more comfortable with (Interview #13, 6 March 2020). The conservativeness of the business is also considered to be one of the main hinders in the adoption of blockchain in the industry (Interview #16, 6 March 2020; Interview #23, 17 March 2020). A significant part of the hype in 2017 was due to the response to inflated prices of cryptocurrencies, where Bitcoin was the most dominating currency. Many companies ended up using the word blockchain to sell their ideas which caused several companies to force the technology into their business ideas. This led to several blockchain projects not going further than pilot projects (Interview #11, 27 February 2020; Interview #8, 20 February 2020). As by now, use cases are not entirely clear. However, the need for blockchain should not be driven by the technology, but by the business case and from case to case (Interview #23, 17 March 2020; Interview #26, 19 March 2020). Another reason for the scepticism around blockchain is that the energy sector is centralised by nature and the system has historically been efficient (Interview #3, 11 February 2020).

Several interviewees also stated that the organisations had looked at incorporating blockchain technology, but either found that it did not provide them with the benefits they had hoped for such as security or upscaling (Interview #12, 4 March 2020). Other found the incentives were too low to change from their current system to an entirely new system (Interview #27, 31 March 2020; Interview #25, 18 March 2020; Interview #26, 19 March 2020). Nonetheless, one of the main reasons was that they found other ways to solve problems without blockchain (Interview #12, 4 March 2020; Interview #23, 17 March 2020; Interview #22, 13 March 2020). A reason to why companies struggles with incorporating blockchain technology could be that the energy industry is moving so quickly that new companies have to act fast in order to stay in the industry. As mentioned previously, blockchain is still a relatively immature technology which may cause new companies to overlook blockchain and choose a more common technology (Interview #23, 17 March 2020).

51 Another challenge with blockchain that was raised was the promise of a trustless system. As mentioned previously, blockchain ensures a system where participants do not need to trust each other, partially because of the single source of truth but also because of the consensus mechanism. However, this is only moderately true. The concept of the trustless system works in the digital world; nonetheless, it is in-between the virtual (off-chain) and the digital world (on-chain) that the concept fails. For example, smart grids that collect data from smart meters have to know that the meters and company who installs them are trustworthy. One way or another, one will have to have a trustworthy source in the physical world for the entire system to be completely trustworthy. There is also an issue of interoperability with other systems. As if it is to work efficiently and correct other system must be blockchain based as well (Interview #24, 18 March 2020).

Other issues pointed out by some of the interviewees was that blockchain consumes much energy, referring to the consensus mechanism PoW, as well as stating that anyone can join the network (Interview #22, 13 March 2020; Interview #29, 8 April 2020). Also, P2P-trading, which is one of the most common use-cases for blockchain in the energy sector, is currently not possible in Sweden as it is not allowed to sell energy over property boundaries.

Whilst blockchain might be a suitable option for other countries; the technology seems to lose some of its core value in a country like Sweden. What interviewees also highlighted was that that trust between organisations is relatively high in Sweden, causing blockchain to be less attractive. Nevertheless, in countries where corruption and fraud are common, blockchain could be more useful (Interview #12, 4 March 2020).

7.1.2.2 Strengths and Opportunities Whilst many are sceptical towards blockchain, some believe this is only a part of the natural innovation cycle and that it is reasonable to get an opposition after a hype (Interview #11, 27 February 2020; Interview #23, 17 March 2020). Whilst blockchain might not be the silver bullet, as it once was thought to be, there are still several opportunities in the energy sector where blockchain technology could be implemented.

As mentioned in the previous section, trust is stated to be one of the core values of blockchain. However, blockchain can be applied wherever decentralisation is needed – regardless of the lack of trust in the system. It could also be that the trusted institution itself no longer wants to take the burden of providing a certain infrastructure or service anymore and would prefer to enable groups of participants from the community to provide and manage the service themselves (Interview #11, 27 February 2020). The technology enables multi-party consensus, establishing trust and providing proofs. However, it is important to note that it should be used for just that and not primarily to store data or as a messaging platform (Energy Web, 2019). Otherwise scalability issues will presumably occur.

Blockchain technology, as mentioned earlier, is still a relatively immature technology, and there are several use cases yet to be discovered. One of the most popular use cases in the energy

52 industry, according to previous research and reports, is P2P energy trading. However, the results from the interviews showed several additional use-cases.

7.1.2.2.1 Citizen energy communities Citizen energy communities is a concept presented by the EU commission in the Clean energy for all-package. This business case was one of the most mentioned cases where blockchain technology could potentially be implemented (Interview #15, 6 March 2020; Interview #16, 6 March 2020; Interview #17, 9 March 2020; Interview #24, 18 March 2020; Interview #25, 18 March 2020; Interview #26, 19 March 2020; Interview #27, 31 March 2020). Blockchain could be a part in enabling communities as such as it could distribute the control amongst the citizens in the community (Interview #25, 18 March 2020; Interview #26, 19 March 2020). Depending on the size of the community, it might not be profitable to employ an organisation to control all the energy in a small community which makes blockchain a suitable solution to control a localised energy system where the technology can assist in verifying, measuring and debiting (Interview #27, 31 March 2020; Interview #15, 6 March 2020; Interview #16, 6 March 2020). However, citizen energy communities are today not possible due to laws and regulation and therefore hinders innovation within this area (Interview #29, 8 April 2020).

7.1.2.2.2 Guarantees of Origin Another highlighted use case for blockchain technology was certificates of origin (CO) or guarantee of origin (GO) (Interview #12, 4 March 2020; Interview #15, 6 March 2020; Interview #16, 6 March 2020; Interview #17, 9 March 2020; Interview #18, 9 March 2020; Interview #29, 2020). GOs are traded documents that one must buy in order to receive renewable energy. The electricity system today is a European one, so electricity produced in Sweden might not be consumed here. In Sweden, many electricity customers feel like they are consuming renewable energy as we produce a lot of renewable energy. However, many of the GOs in Sweden are exported as it is an excellent source of revenue for a lot of Swedish companies. A retailer will buy renewable energy and receive a GO to verify that the energy being bought is in fact, renewable. When the energy is then sold, the retailer needs to cancel the GO. This process is purely administrative; however, this process can take months to settle GO bought and sold (Interview #29, 8 April 2020). Also applying for certificates, which is controlled by the central hub AEB, is a slow process which leads to a lot of inherent problems and delays. Blockchain technology could help to automate, with digital identities and smart contracts, both the process of applying for green certificates and the double-counting issues that occur when buying and selling renewable energy (Interview #15, 6 March 2020; Interview #16, 6 March 2020; Interview #29, 8 April 2020).

Today the cost of receiving a green certificate is too expensive for small DERs due to costly and time-consuming intermediators that work with verifying renewable DERs. Here blockchain could play a tremendous role as it cuts out the intermediators and therefore cutting costs, enabling small scale renewable energy resources to be a part in the market. This also makes a lot of sense since most DERs are small scale. GO is today said to be the most relevant use case for blockchain in the energy sector (Edward, 2019; Energy Web, 2019; Interview #29, 8 April 2020).

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7.1.2.2.3 TSO management The power system is becoming more and more complex with more and more actors on the market. Today SVK uses relatively little data to control the power system, but in the future, SVK will have to gather more high-resolution data in order to run a sufficient power network. However, with this comes a security issue. As the entire system will be run based on this data, SVK must know that the collected data is secure and from a verified reliable source (Interview #23, 17 March 2020). As blockchain is mainly used for governance, TSO management of identifying and verifying various energy resources is a suitable match for where digital identities could be used.

Blockchain could also enable better coordination between DSOs and TSOs to allow insight in both operator’s different activities. This could increase the transparency between the two operators resulting in a more efficient system (Interview #17, 9 March 2020; Interview #18, 9 March 2020).

7.1.2.2.4 Demand-side flexibility Digital identities can also assist grid operators in integrating more customer owned DERs (Interview #29, 8 April 2020). A customer that wishes to participate on the electricity or flexibility market creates a digital identity that is coordinated with other participants and systems on the network. The service that the customer wants to provide needs to be authenticated to prove that it is what it says it is and owns the right capacity (e.g. a solar panel is verified by a solar panel installer). The identity is then verified by other verifying operators on the network e.g. grid operators, retailers or regulators. The service is then authorised and can directly participate securely with TSOs or DSOs, or any other operation interested in the flexibility or electricity service. The blockchain technology enables digital identities to provide a trustworthy, scalable and low-cost process of incorporating more DERs independent of size (Energy Web, 2019).

7.1.2.2.5 Microfinancing Blockchain could also be used for microfinancing in the electricity system. For example, individuals could collectively buy solar panels and control and manage the use of the energy together, instead of someone having to take the sole responsibility of operating the solar panels. Investment in various renewable energy projects could also incorporate blockchain to track that the money invested is being used for that specific project (Interview #1, 6 February 2020; Interview #29, 8 April 2020).

7.1.2.2.6 Local energy markets Today there are no energy markets on a local level. The more energy one can balance on the local level, the better it is for the entire energy system. Blockchain technology could enable a local energy market where citizens could be in control of the entire system jointly, excluding an expensive market operator (Interview #27, 31 March 2020).

54 Table 7: SWOT-visualisation of Blockchain in the electricity system.

Strengths Weaknesses

• Considered to be an ineffective and immature • Natural to receive an opposition after a hype – does technology. not mean blockchain is not relevant anymore. • Unclear use-cases. • Blockchain can be applied wherever decentralisation • Integrating blockchain did not lead to the expected is needed, regardless of lack of trust. benefits. • Could be integrated where the trusted institution • Problems with upscaling and security. itself no longer wants to take the burden. • Promise of a trustless system fails when moving from “off • Should be used primarily as governance layer, not the chain” to “on the chain” i.e. the virtual world to the storage. digital world. • PoW consumes a lot of energy.

Opportunities Threats

• Citizen energy communities • Lack of blockchain knowledge in the Swedish energy o Blockchain could distribute the control. sector. o Could also assist in verifying, measuring • Opposition towards blockchain. and debiting energy services. • The energy industry is too traditional and conservative. o Eliminates cost of intermediate. • Many relate Blockchain to Bitcoin. • Guarantees of Origin • Previous projects forced the technology on to potential o Current system is too slow and inefficient. use-cases. o Tackles double counting issue. • Energy sector is centralised by nature. o More high-resolution verification of green • Incentives to change from old technology to blockchain certificates. technology is low. o Lowers barriers for small-scale RES. • Many problems that blockchain solves can be done with • TSO management other more familiar technologies. o Power system becoming more and more • Energy industry is developing fast and companies do not complex. have time to learn and incorporate blockchain. o Can verify and secure that gathered data is • One of blockchains most potential use-cases cannot be from a reliable source. upscaled due to laws and regulation. o Digital identities can be used to verify • Integration of blockchain should be driven by business reliable sources. cases not technology. o Enable better coordination between TSO • Trust between organisations in Sweden is relatively high, and DSOs. therefore no need for blockchain. • Demand-side flexibility o Integrate customer DERs that want to participate on the electricity market. o Digital identities provide proof of secure and reliable identity. o Verification and authentication provided by other electricity system and market players. o Reduces time, cost and enables scalability of DERs. • Microfinancing o Neighbourhoods could collectively buy solar panels and responsibility is distributed. o Track investments in RES projects. • Local energy markets o Eliminates the cost of expensive market operator. o Controlled collectively by community.

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7.2 Quantitative findings In addition to the interview questions, 19 interviewees received a survey whom all had various knowledge about both the electricity system and blockchain. The survey examined the blockchain characteristics in the future electricity system without explicitly mentioning them as blockchain-characteristics. Considering the diverse knowledge, it was chosen to have relatively wide questions and to exclude the term blockchain in the survey to eliminate biases towards the technology. The survey included these six numerical ranking questions where the interviewee was supposed to rank his or her opinion in a subject from one to five, where one represents “very negative”, and five represents “very positive”.

• Does the electricity system need to be more decentralised in the future? • Is there a risk that the transaction costs will rise with more actors in the market? • Would the power system benefit by getting more transparent? • Is there an issue of trust in the electricity system today? • Can the information input in the system be corrupted? • How much do policymakers hinder innovation?

In Figure 16, a graphic presentation of the findings from the survey can be found.

5

4,5

4 Decentralised 3,5 Transaction cost Transparent 3 Trust issue 2,5 Corrupted 2 Policy makers

1,5

1 Figure 16: Quantitative findings from survey

The mean value, represented by an X in the figure, for the first question was 3.8 which indicates that the majority of the examinees believes that the electricity system would benefit by becoming more decentralised in the future.

The second question has a wide answer spectrum, spanning from one to five and a mean value of 3.0. The mean value indicates that the transaction cost in the future electricity system neither has a low, nor a high risk to increase. When considering the answer span, it could thus be

56 concluded that some interviews believe that the transaction costs will rise with more actors on the market while others believe that the transaction cost will be similar or even decrease.

In the survey, question number three created the most consistent answers among the participants. With a mean value of 4.6 and the answers spanning from three to five, the interviewees established that the power system would benefit by becoming more transparent.

Much like question number two, the fourth question’s mean value was centred in the middle with the value of 2.9. The participants in the survey did, accordingly, indicate that there is not a big problem with trust in the Swedish electricity system today.

Question number five had a mean value of 3.5, and the upper quantile reaches five. The survey, hence, concludes that the information input can be corrupted even if the mean value indicates that the risk is not that big.

The last numerical question investigated the interviewees’ perception of how much policymakers hinders innovation. The answers were centred between three and four with a mean value of 3.3.

The survey ended with a question that asked the participant to mark which of the technologies IoT, Blockchain, AI or Other that they thought would be integrated into the future electricity system (see figure 17).

Figure 17: Multichoice question from survey.

A visual presentation of the interviewees’ perception towards the three technologies IoT, Blockchain and AI in the future electricity system is found in Figure 18. The result designates that 100% of the participants thought that AI would be a part of the future electricity system, while 79% thought that IoT would be integrated. The technology that least participants thought would be a part of the system was Blockchain with 53%.

IoT

Blockchain

AI

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Figure 18: Technologies in the future electricity system.

57 Three of the participants marked the “Other” alternative and specified the following technologies: drones, data centres, battery solutions, aggregator hubs, transportation chargers, hydrogen storage, local DER-grids and technology around security.

8 Analysis & Discussion Chapter 8 will analyse the results presented in chapter 7 by using an MLP framework (see Chapter 5). After examining the results, it will be concluded that the transition path of the Swedish electricity system is that of a reconfiguration pathway, as mentioned in Section 5.5.3. After analysing the results, a conclusion could be drawn that Sweden’s primary issue concerning the electricity system is the issue of flexibility. Therefore, the analysis and discussion will mainly focus on the flexibility concerns regarding the Swedish electricity system.

As stated, the electricity system is a centralised system; however, going towards a more decentralised system. As mentioned in the results, section 7.1.1.5, new businesses opportunities are arising and will bring forth new actors, however, most of these actors work as complementing or taking on a new role that has previously not existed. In other words, new actors will not aim to disrupt incumbents but rather work with them than against them. In other cases, incumbents may incorporate similar business models as new entrants and therefore become a threat to new actors. However, the start-ups interviewed in this study stated that they see incumbents more of as a benchmark than a threat (Interview #19, 9 March 2020). Nonetheless, the majority of new entrants are working with incumbents rather than against them.

The reconfiguration pathway was also chosen because of the way that technologies and innovations impact the industry. Radical innovations such as renewable energy technologies (solar PV, wind turbines, etc.) have changed the industry immensely and created both opportunities and challenges. This has in turn resulted into further innovations such as flexibility markets which in its turn creates new opportunities and challenges and so on, resulting in an “innovation cascade”. However, what has been discovered in the qualitative finding is that with various flexibility services comes several issues which yet again causes a another “innovation cascade”. Blockchain could potentially solve several of these flexibility issues.

The socio-technical transition of the Swedish power system, regarding radical innovations developed in the niche, can, therefore, potentially be divided into three different cascades; 1) Renewable energy sources 2) Flexibility services and 3) Blockchain. The technical transition of the Swedish electricity sector is visualised in Figure 19, and the content will be further discussed in the following sections 8.1, 8.2 and 8.3. The figure is based upon (Geels, 2002) visualisation of a dynamic MLP of the technical transition.

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Figure 19: A dynamic multi-level perspective of the technical transition of the Swedish electricity sector.

8.1 Sociotechnical landscape As mentioned previously, the ST landscape is where the external factors are, that put pressure on both the niches and regimes to transition. The first, major external factor in the transition of the electricity system in Sweden was climate change. In 2014 Sweden decided to be fossil-fuel- free by 2045, and in order for this to happen, many sectors will need to decarbonise. The findings in section 7.1.1.2 confirm that Sweden aims to reduce the CO2 emissions by electrifying the transport and industry sector as well as integrating more RES. This will in turn lead to an increase in Sweden’s electricity consumption and grid capacity challenges. Several findings in section 7.1 also mention the Clean energy for all package is a contributing factor to the changes of the current regime and driving force of new innovations.

The second external factor is the deployment of nuclear power. Nuclear power has since the accident at Harrisburg in 1979 and Chernobyl in 1986, been a much-discussed topic. Sweden has since the 1970s produced a large part of its electricity with nuclear power. However, since 1999, several nuclear power reactors have successively closed down and in 2016, as mentioned previously, Sweden decided to phase out nuclear power completely in the Energiöverkommelsen, but the agreement was interrupted when two parties decided to prevent the nuclear phase out (Regeringskansliet, 2016). However, the results in section 7.1.1.1 state that nuclear is an important question and if nuclear were to be phased out it will have to be substituted by another power source, where RES most expectedly will be the replacement.

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The third factor, which is one of the biggest factors causing technological transitions today, is digitalisation. The world is currently going through a digital transformation, where new technologies are changing the way people work and live. It has created great new potential for industries to become more efficient, create better customer experiences and outcomes as well as creating new business models (World Economic Forum, 2018). The power sector, like so many other sectors, is going through a digital transformation which creates pressures on market participants to incorporate digital technologies. Figure 18 in section 7.2, indicated that all survey participants believed that AI would be a part of the future electricity system, 79 percent thought IoT would be a part of the system, whilst only 53 percent believed in the involvement of blockchain. A reason for the lower percentage could be because of the recent scepticism towards blockchain and the emergence of the opposition that tends to occur after a hype mentioned in section 7.2.1.1. What can be seen from the findings, is that digital technologies will have a significant impact and transform current regime and opening up several opportunities for new business models and technologies that enable a more secure and robust power system.

8.2 Regime To succeed with the decarbonisation of the country, there is a big trend of electrification. The consumption is forecasted to increase by 32% to the year 2045, and the increase is most significant for the industry and the transportation sector (NEPP, 2019). Especially the increased share of EVs in the country will put pressure on the grid since it requires both new charging infrastructure at a local level and a changed mindset towards consumption (Interview #18, 9 March 2020). The increased electricity consumption in large cities and in particularly Stockholm will lead to capacity shortages. The system will be able to generate sufficient with electricity, but there is a risk that the system will not have enough capacity, i.e. there are not enough power lines in the system to transport the electricity to the end-user. This can be solved in two ways, either build more power lines or apply demand management, where demand management can be incentivised via local flexibility markets (Interview #19, 9 March 2020).

The regime in this analysis emphasises the electricity system. In a reconfiguration pathway, the regime actors adopt to component-innovations and its cumulative change, due to both economic and functional reasons. The cumulative change is then followed by changing interpretations and new practices (Geels & Schot, 2007).

The finding in section 7.1 prove that the current regime is facing a transition that is driven by cumulative changing components. As shown in the results, section 7.1.1.1 the current regime has historically, and is still today a centralised system where the vast majority of the electricity has been transmitted through one-directional flows from large generation sites via the transmission grid, to the distribution grid and lastly transmitted to the end consumer. Furthermore, section 7.1.1.2 states that production has been directed by the consumption, meaning that the generation of electricity has adapted to the load.

60 From the findings in section 7.1.1.1 it can be confirmed that the current regime is transitioning to a more decentralised system with an increase of wind- and solar power to decrease the use of fossil-fuel reserves and nuclear power. An increase of power sources is also required as electricity consumption is increasing because of the electrification of the transport and industry sector, this will, consequently, increase capacity shortages on the power grid. As stated in section 7.1.1.4, this prevents construction of residential homes, charging infrastructure for EVs and wind power farms. There is, subsequently a need for the regime to transition into a more flexible and dynamic electricity system. In Figure 20, a visual presentation of the regime today and tomorrow is illustrated.

Figure 20: Regime transformation.

The results in section 7.1.1.5 show that regulators and electricity market players are trying to adapt to a more flexible system by going from one-hour to 15 minutes settlement periods, as well as increasing the number of pricing areas. However, there are also several issues with the current regime that hinder Sweden’s electricity system to adapt. As presented in section 7.1.1.4, the flexibility market today is currently only suited for hydropower plants and more larger actors on the market. Findings in section 7.1.1.3 state that subsidies and low electricity prices prevent Swedish households from storing excess energy in home batteries, which could otherwise be used for flexibility services. Section 7.1.1.5 also mentions how low electricity prices hinder people from changing their behaviour, which is required in order to prevent capacity shortages on the grid.

61 The current regime needs to find further solutions to integrate more flexibility to the system. Blockchain could be an enabling technology for flexibility solutions, however, section 7.2.2.1, expresses the difficulties of it as the current regime is a very traditional and conservative regime.

8.3 Niche As mentioned previously, the niche is where radical and incremental innovations are planted and grown, where on the reconfiguration path, leads to various innovation cascades.

8.3.1 Cascade 1: Renewable energy sources A significant part of the reconfiguration pathway is that the regime has begun to explore new combinations between old and new components which may lead to new adoption of niche- innovations (Geels & Schot, 2007). Climate change, the rise of new digital technologies and high nuclear power risk put pressure on existing regimes which forces change. Issues of climate change were met by niche innovations (however, maybe not as radical today as they were just ten years ago) such as the various forms of renewable energy resources; solar PV, offshore wind turbines etc. which led to a significant transformation in the energy sector. The majority of the electricity in Sweden is currently generated from RES and even more RES will be integrated (SCB, 2020). This transition has led to new challenges: grid instability, grid congestion and volatile markets where the common denominator solution for these three is flexibility. The upcoming flexibility challenges require novelties (technical, economic and social) and space for new adoption of niche-innovations. Additionally, these innovations, in combination with the landscape pressure, can add up to major reconfigurations and even lead to a regime shift (Geels and Schot, 2007).

8.3.2 Cascade 2: Flexibility services As presented in the qualitative findings (Section 7.1), the flexibility challenge is widely recognised among the actors of the system. It is, however, unclear how the challenge should be solved and by whom. Section 7.1.1.5 proposes a flexibility markets as a solution, where both new entrants and incumbents can buy and sell flexibility services. Section 7.1.1.5 further states that these markets ought to be on national, regional and local level. In Figure 22, a potential simplified flexibility market is visualised. The figure is inspired by the company Nodes’s market design and has subsequently been modified in regards to the qualitative findings (Nodes, 2020).

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Figure 21: Potential flexibility market.

Section 7.1 provide several solutions for a more flexible power system. Increase of batteries both in residential homes and along the grid in order to store excess power and supply with electricity when generation is low. Other solutions presented in section 7.1.1.1 are citizen energy communities that can produce and consume their own electricity so at times when there is congestion on the grid, they can disconnect themselves. The increase of EVs can create major congestion problems, however, if managed correctly and smart, EVs could also provide flexibility services through V2G management, as mentioned in section 7.1.1.2. This section also confirms the need for demand side management. However, because the financial incentives are so low it is difficult to persuade people to change their behaviour to prevent congestion on the grid. Nevertheless, as electricity generation becomes more volatile, so will energy prices which may increase financial incentives. Flexibility services may also be an even greater source of revenue as the demand for flexibility increases. Nonetheless, results in 7.1.1.2 show that the likelihood of customers responding entirely towards energy load is low. Therefore, one should focus on operating flexibility services from non-behavioural power sources such as heat pumps, batteries and ventilation.

However, people are not that interested in managing their own energy consumption or flexibility services. Also, a battery from one home battery or EV will not be able to solely provide sufficient flexibility. This system therefore requires an aggregator that could gather and coordinate small-scale electricity production and flexibility services. Findings in section 7.1 confirm the need and emergence of aggregators in the Swedish electricity market. Their role is however, yet reactively, undefined. As stated in section 7.1.1.5 aggregators also need to include further services in their business model as the value offer of exclusively providing flexibility service and electricity not will be enough as it easily can be outcompeted.

8.3.3 Cascade 3: Blockchain The qualitative findings in section 7.1.1.5 suggest that, on the prospective Swedish flexibility market, aggregators will collect flexibility from either industries, offices or consumers and then

63 sell the flexibility on the market. The aggregators will accordingly aggregate flexibility from a wide range of actors and function as a third party towards the market. The fundamental idea of blockchain is to eliminate intermediaries, but paradoxically, it is in the hand of an aggregator that blockchain potentially can create value on the flexibility market.

With dispersed and decentralised sources of flexibility, like home batteries, solar PVs, EVs and heat pumps as potential flexibility providers, the aggregator, first of all, needs to identify the flexibility provider and validate that the provider can facilitate flexibility at that exact moment. Section 7.2.2 mentions then identification can be completed via digital identities without any human interaction from the flexibility provider.

Today aggregators in Sweden use estimations to approximate how much flexibility they can provide, which is enabled by a fixed set of customers/providers (Interview #19, 9 March 2020). If the flexibility market were to be more open and allow providers to sell their flexibility measures to multiple aggregators, there is, however, a need for an authentication process to eliminate double counting and secure a specific amount of flexibility. When an aggregator has reached a deal with a flexibility provider, the transaction can, later on, be completed via a smart contract. Blockchain should, in other words, function as a layer of governance that enables the authentication and transaction process to be automatic with no, or little effort from the flexibility provider. The five value characteristics of blockchain; Decentralised, Transparency, Traceability, Immutability and P2P interaction, can consequently give a helping hand and assist the aggregator in this process. It should thus be mentioned that blockchain is not the only alternative for aggregators and that blockchain is only a part of the potential solution to the flexibility challenge. The entire market should not build on blockchain technology, but a proof of authority solution could create value and help aggregators.

As presented in section 7.1.2.2.1, a citizen energy community could be a suitable blockchain use-case. However, as mentioned in section 7.1.1.1, energy trading over property borders are currently not allowed, which prevents the entire concept to function, regardless of using blockchain or not. This use-case in Sweden is therefore yet to be investigated. The blockchain technology could however be used for micro financing local RES. Sweden has many islands where people own holiday properties. Blockchain based microfinancing could be used for island communities to install their own solar panels, that can be used during the summer season.

As stated in section 7.1.2.2.3 SVK, uses today relatively little information to control the power system. That will, however, not be possible with a new flexible power system. SVK will require more high-resolution data, but it is vital that the provided data comes from reliable and secure sources. Digital identities could also be used in this case, to ensure that the accessed data is accurate and trustworthy.

As section 7.1.2 also indicates is that the requirement for blockchain should be driven by the business case and value-creating capabilities rather than the technology. The survey in section 7.2.2 indicated that the electricity system would benefit by becoming more decentralised, transparent and resilient to the corruption of information. Furthermore, blockchain is a

64 decentralised technology and seeing that the system is moving towards a more decentralised and distributed system, it is logical that businesses and academia have put one and one together and seen the potential of blockchain in the electricity system.

Today, the blockchain technology is, however, not mature enough to operate a flexibility market. The technology’s strength is to manage digital assets when there is a need for a trustless, decentralised and immutable ledger. As soon as there is a prerequisite for digital assets to transform into physical assets, which is the case in the electricity system, the technology loses its purpose. Seeing that the flexibility market somewhat still will have a central structure, even if the number of actors will be increased and the flexibility will be dispersed, another one of the most substantial arguments for blockchain disappears. Blockchain is, according to the literature review, applied to reduce overhead costs (i.e. transaction costs) but, according to the survey the transactions costs will most likely not increase, and today Sweden has an effective system with low transaction costs.

An additional argument for blockchain is that the technology can create value when there is a problem of trust since the ledger cuts out the middleman, but the survey did, nonetheless, indicate that there is not a problem with trust within the electricity system in Sweden today. Subsequently, it is not apparent if or how blockchain technology can create value in the future electricity system. Also, the issue of going from “off-chain” to “on-chain” is a matter that creates suspicion. If, taking the example with a customer with solar panels being installed and then verified, the customer could in practice either persuade the solar panel installer with monetary means to verify a much bigger capacity that is actually installed for the customer, or by accident verify an incorrect capacity. The incorrect amount of capacity would then be registered on the chain, creating a faulty system. Also, as discovered in the literature review which was later confirmed in section 7.2.1 is the issues of scalability, security and interoperability.

Furthermore, there is a considerable scepticism against the technology from the interviewees, especially from the older generations. With that said, more than half of the interviewees believe that blockchain will be a part of the future electricity system. No one knows today how the technology will develop, but the buzz about blockchain that came with Bitcoin gave the technology a rather lousy reputation since the majority of the following pilot projects failed. Blockchain will not be the silver bullet that is was once thought, at least not within the next few years. The technology does, however, possess characteristics that are becoming more and more valuable.

With sharing economies and the importance of sustainable development, both decentralisation and transparency are more valuable now, than ever before. Besides, in developing countries where there is an issue of trust towards authorities, the citizens would benefit from trustless and immutable systems. Henceforth, is there potential in the technology to solve this kind of issues and assist in the development of a more transparent and sustainable world.

65 9 Conclusion Chapter 9 presents the final conclusion and answers the three sub-questions How will the future Swedish electricity system be configured? What are the value-creating characteristics of Blockchain? Can these characteristics potentially create value for the future electricity system?

Previous research and pilot-projects regarding blockchain have often been established in niches, and this study has found that most of these projects have originated from the actual blockchain technology and then been applied to the system. Furthermore, these projects have often been driven in small scale or solitary theoretical to prove that the blockchain technology can complete a specific task, for example, P2P trading. This thesis agrees with previous studies that the development should be developed in niches, but, unlike the majority of previous studies, this study has begun with establishing the value-creating characteristics of blockchain rather than elaborate if blockchain can be applied to a specific case. This study has found that blockchain particularly has these five value characteristics: 1) transparency 2) decentralisation 3) immutability 4) traceability and 5) P2P interaction.

Moreover, this study has found that the electricity system in Sweden is facing a regime transition from a centralised system with stable generation and consumption-based production, to a decentralised system with more intermittent generation and production-based consumption. The transition is seen as a reconfiguration pathway where the landscape pressure consists of decarbonisation, digitalisation and a potential nuclear phase-out. With this transition, new challenges will appear, and the common denominator for these challenges and solutions is flexibility. In the coming years, it will most likely develop a more open flexibility market that will put a price on flexibility and also enable new business models and market participants. The most mentioned participant is the aggregator, that will aggregate consumers or/and industries flexibility and sell this flexibility on the market. It is thus unclear who will take the aggregator role and exactly how the business model will be designed.

It is in this regime transition blockchain potentially can create an innovation cascade by acting as a layer of governance. The flexibility will be decentralised, and there is a need for an authentication process that can guarantee that the flexibility provider can assist with flexibility at a given moment. Blockchain’s five value-creating characteristics can, consequently, be one solution to the problem. However, neither the flexibility market, the business model of aggregators or the blockchain technology are mature enough to be implemented today. It is, consequently, unclear if blockchain will create value in the future electricity system, even though there is potential.

10 Proposed future works During this study, several new interesting questions have arisen. First of all, the flexibility challenge is receiving widespread attention in the entire electricity sector, and it is still unclear how the challenge will be resolved. The interviewees seemingly agreed upon that a new, or at least a modified flexibility market is needed. It would accordingly be interesting to investigate how this market should be developed.

66

Secondly, blockchain is an exciting technology with great potential. No one knows if the potential will be utilised and if the technology experiences a normal dip after the hype and simply follows the Gartner hype cycle. The technology can thus be difficult to understand fully, and just like this thesis mentions, the appliance of blockchain should be application-oriented rather than technology-driven. Subsequently, it would be interesting to analyse further if blockchain could function as the layer of governance or if there are other and better alternatives to handle the authentication process.

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12 Appendix I – List of interviewees

Duration # Title Company description Date (min) Consultancy firm with knowledge in digital 1 Consultant transformation within power & utilities. 06 February 2020 62 Academia, department focusing on electric power and 2 Associate professor energy systems. 10 February 2020 57 Academia, department focusing on electric power and 3 Associate professor energy systems. 11 February 2020 45 Academia, department focusing on electric power and 4 Professor energy systems. 12 February 2020 46 Academia, department focusing on electric power and 5 Doctoral student energy systems. 12 February 2020 48 6 Analyst Authority with focus on inspectorate in Sweden. 14 February 2020 Mail Academia, department focusing on electric power and 7 Doctoral student energy systems. 18 February 2020 43 8 Associate professor Academia focusing on software and computer systems. 20 February 2020 Mail 9 Head of R&D One of the biggest energy utility companies in Sweden. 26 February 2020 55 Expert in the future Association focusing on the development of the future 10 electricity system Swedish electricity system. 27 February 2020 55 Academia, department focusing on electric power and 11 Doctoral student energy systems. 27 February 2020 72 Start-up, company developing digital measuring and 12 CEO control for consumers on the electricity system. 04 March 2020 50 Authority that contributes with facts, knowledge, and analysis of supply and use of energy in the society, 13 Programme manager as well as works towards security of energy supply. 06 March 2020 55 Authority that contributes with facts, knowledge, and Research programme analysis of supply and use of energy in the society, 14 manager as well as works towards security of energy supply. 06 March 2020 55 Association aiming to accelerate sustainable 15 Thematic leader energy innovations via partnership and investments. 06 March 2020 65 Business development Association aiming to accelerate sustainable 16 intern energy innovations via partnership and investments. 06 March 2020 75 17 CEO Start-up, aggregator mainly focusing on heat pumps. 09 March 2020 61 Head of asset Utility, one of the biggest energy utilities in Sweden 18 management focusing on network performance. 09 March 2020 55 Customer project Start-up and aggregator aiming to create a 19 manager digitalised, decentralised and flexible energy system. 09 March 2020 61 Start-up and aggregator aiming to create a 20 CTO digitalised, decentralised and flexible energy system. 09 March 2020 61

84 Association, Research and knowledge institute that 21 Program director advances and coordinates energy research. 10 March 2020 35 Consultancy firm with knowledge in human behaviour and energy market monitoring, best 22 CEO practice, benchmarking, and case study identification. 13 March 2020 65 Marketing & Consultancy firm that plans and designs the 23 digitisation manager sustainable communities and cities of the future. 17 March 2020 52 24 Senior advisor Authority with focus on inspectorate in Sweden. 18 March 2020 50 25 Analyst Authority with focus on inspectorate in Sweden. 18 March 2020 50 26 Senior analyst Authority with responsibility for the energy system. 19 March 2020 58 Startup with focus on creating digital services that can control and understand the energy consumption, 27 COO cost and environmental impact. 31 March 2020 40 Startup with focus on creating digital services that can control and understand the energy consumption, 28 Software developer cost and environmental impact. 31 March 2020 40 Startup with the aim to create decentralised software 29 CEO solutions for the energy sector. 08 April 2020 80

13 Appendix II – Systematic Literature Review In this section the entire systematic literature is presented.

13.1 Decentralised energy trading Decentralised energy trading addresses P2P-trading, distributed networks and new trading platforms. One paper concluded, with the help of a co-simulation approach, that blockchain can be applied to a suburban distribution network in a European context and that moderate P2P trading does not have a significant impact on the operational performance of the network (Hayes et al., 2020). Furthermore, does a paper state that blockchain can solve the trust issue of traditional energy trading mode with the help of consensus mechanisms hence, making the distributed multi-energy system possible and providing technical support for new energy trading system (Dong et al., 2020). A similar report studied how a microgrid could reduce its operating costs and increase the security by using blockchain to authenticate the user that desires to participate in a transaction (Zhao et al., 2019). Via the implementation of smart contracts, another study argues that distributed networks can be fully automated and run in a decentralised fashion, and when bypassing the need for a central physical authority, the transaction costs can be decreased (Troncia et al., 2019). Similar arguments can be found in a report that analysed a bottom-up energy trading platform built on blockchain and smart contracts. By eliminating intermediaries, both individual consumers and prosumers can increase their profitability because the transactions of money and electricity do not have to be authorised via a central authority. To secure incentives for a flexible load demand, a dynamic grid fee was used that is represented by an energy token (a cryptocurrency) (Faizan et al., 2019).

The integration of blockchain can also enable trading between prosumers and optimise the flow of electricity between a distributed network by predicting future supply and demand in the

85 decisions. A model built on a predictive control framework concluded that RES could increase its penetration among prosumers from 71% to 84%. An additional study established that blockchain can utilise the increasing penetration of rooftop photovoltaic (PV) and enable communities to enjoy cheaper electricity while supporting locally produced fossil-free electricity, thus, increasing the need of new auction mechanisms and bidding strategies (Lin et al., 2019).

One of the few reports that are negative towards blockchain states that blockchains solutions suffer from scalability problems and that they also have delays in the transaction confirmation. To solve this a “block-free distributed ledger” that could overcome these challenges is proposed for P2P energy trading (Park et al., 2019).

A British report studied the consumer attitude towards blockchain and P2P energy trading and the most appreciated blockchain characteristic for the consumers were anonymity. When the participates in the study (n=2064) were asked who they most likely would have preferred as the owner of the trading scheme the answer was the local council, followed by energy suppliers, community energy organisations, and at last social media companies. It was also concluded that when mentioning blockchain’s association with bitcoin, the intended acceptance substantially decreased (Fell et al., 2019).

13.2 IoT, smart devices, automation & asset management This category captures the value blockchain can provide to digitalisation technologies and asset management. Blockchain can realise an automated demand response framework for P2P trading where the security is enhanced via an equilibrium solution for energy storage systems. This cuts out a centralised entity at the same time as the system will be more price effective by matching trading pairs involving buying and selling nodes (Yang et al., 2020). IoT can also utilise blockchain by storing the information, and at the same time, IoT devices could help with the mining. Blockchain and IoT could, therefore, enable a decentralised on-demand energy supply via microgrids (J. Li et al., 2019). An additional study describes the problem with the current DLT-systems, like bitcoin, and the fact that they do not meet the efficiency and scalability requirements for IoT. The study does, however, propose a solution by leveraging a DLT called Directed Acyclic Graph (DAG), hence, solving the trilemma that DLT platforms rarely can reach decentralisation, scalability and security simultaneously (Fan et al., 2019).

A Smart grid is built upon smart meters that gather and sends consumption and production data of consumers. Today this data is usually sent to a centralised entity, but with a more decentralised system and P2P trading, these meters have to exchange data with their peers. This increases the communication requirements of the smart meters in a blockchain network and requires a ten times higher bandwidth compared to regular smart meters (Meeuw et al., 2019).

In microgrids, PV generators will contribute to the voltage control and regulation via reactive power provision, and blockchain can thus verify the contribution and remuneration. With the help of blockchain, the system will consequently, become more transparent and enable cost traceability in the transactions (Di Silvestre et al., 2019). Information-centric networking can,

86 in the future deliver energy data for smart grids where blockchain has the potential to identify malicious nodes, hence making the data more trustful (H. Li et al., 2019). A similar study concluded that the primary value proposition with blockchain for stakeholders in a microgrid is a standardisation of data exchange and communication. The major challenge was how the physical implementation of blockchain in the microgrid should be managed (Kirpes et al., 2019).

13.3 Grid management Blockchain has the potential to both decentralise the electricity system and to manage the grid; this chapter will describe the latest research within this area.

Energy distribution using a centralised grid architecture has limited applicability in integrating renewable energy production and consumption. Blockchain can lay the foundation in creating a trust-less decentralised energy production and distribution that is reliable and built upon the validation of the blockchain technology (Talat et al., 2020). With a more decentralised system, the need for flexibility will increase, and demand response is one way of stabilising the grid and managing peak demand. There is, nevertheless, an uncertainty of user’s behaviour which becomes a barrier for demand response. With these new challenges in flexibility and demand response, aggregators are starting to approach. To solve a potential trust issue between consumers and aggregators, blockchain and smart contracts can be integrated since it has the characteristics of being secure, privacy-preserving, tamper-resistant, auditable, reliable, irreversible and decentralised (Patsonakis et al., 2019)(Liu et al., 2019). A blockchain-based grid consisting of smart contacts and decentralised identifier guarantees can also create a seamless, secure and efficient energy system (Y. Li et al., 2019). The integration of blockchain in the power grid can, furthermore, provide a consistent view of the current system state via constant validation, hence, making the power grid more resilient. The same study underlines that the existing physical components in the power system are heterogenous with limited communication capabilities, and accordingly creates challenges with implementing blockchain today (Liang & Shetty, 2019).

Local energy markets may be the solution to more locally distributed energy resources and the need for more renewable energy on the system. These systems can exploit blockchain solutions to match supply and demand and record the transactions. These systems are thus heavily reliable on accurate forecasts for both supply and demand, and a study concluded that the costly settlement of prediction errors could even surpass the savings brought to consumers by a blockchain-based energy market (Kostmann & Haerdle, 2019).

13.4 Electric e-mobility This area covers the electrification trend of vehicles and how blockchain might be integrated into this sector. Among other key technologies in the smart grid, vehicle-to-grid (V2G) provides a solution in reducing peak demand where blockchain, contract theory and edge computing can facilitate a secure and efficient V2G energy trading framework (Zhou et al., 2020). A study analysed requirement in physical and cyberinfrastructure when implementing trading between

87 EVs on parking lots. The report concluded that blockchain could assist the cyberinfrastructure since it can log the transactions and make them auditable and traceable (Silva et al., 2019). A similar study conducted a project that integrated blockchain and IoT in the EV charging system. IoT sensors measured the energy consumption and communicated this to an app where blockchain handled the financial transaction (Martins et al., 2019)

With an increased amount of EVs, the charging stations need to be fair and incentive- compatible at the same time as the systems ensure that power transmission and transformation facilities are not overloaded. One report has established that blockchain can distribute initial charging rights in a fair manner that also ensures the security of the power system. The blockchain platform also enables trading of these charging rights efficiently and transparently (Silva et al., 2019). To secure that the charging and payment of EVs are anonymous and that the system cannot link charging stations to individual owners, at the same time as all transactions are stored, a blockchain solution is presented by another study. The study’s result indicates that the overhead costs of the cryptographic operation for the transactions are low, both in terms of computational and communication costs (Radi et al., 2019).

13.5 Security The security area aims to capture the literature that emphasises security as the value proposition of blockchain. One report suggests a blockchain-based framework for privacy-preserving and secure data sharing that would include entire cities and its cyberinfrastructure. The framework explores the possibility to divide blockchain into various channels, where each channel consists of a finite number of authorised organisations, and one of these channels would be smart energy. To create enticements for users to share their data, the report presents a reward system, in the form of a digital token called “PrivyCoin” (Makhdoom et al., 2020). To overcome cyber- security concerns in IoT, blockchain can furthermore assist in these four categories: end-to-end traceability, anonymity and data privacy, authentication and identity verification, and at last confidentiality, data integrity and availability (Alotaibi, 2019).

In a power system, there could be problems with how to ensure that the data transmitted by the grid is authentic and has not been modified. One report purposes a blockchain solution to store communication data and increase the communication security with the goal to secure that there are not any modification attempts in the system. Also, blockchain could authenticate the power source and track it all the way to the consumer (Casado-Vara, 2019).

In networked microgrids, blockchain can enhance the cyber-security within energy trading. By utilising transparent and decentralised solutions, the security will increase at the same time as the risk for financial fraud will decrease, and the operational cost could be lowered (Wang et al., 2019). Considering a micro perspective blockchain can protect battery energy storage systems against cyber-attacks through smart contracts. One paper proposes a distributed smart- contract based control approach the would enable secure and collaborative operations among batteries in a network that is verified by secure consensus mechanisms (Mhaisen et al., 2019). To overcome trust issues in a decentralised charging infrastructure of EVs one study proposes

88 a blockchain platform that enables interactions between mutually untrusting agents on a decentralised network of charging stations (Gorenflo et al., 2019).

13.6 Metering and billing Metering and billing represent the reports that highlight how blockchain can render value in the metering and billing processes of the electricity system. A study conducted in Seattle analysed how market participants can interact via smart contracts by sending their asks and offers while a distributed application clears the market based on a uniform-price economic model (Foti & Vavalis, 2019). In an open distributed electricity system, nodes in the trading network can join and leave at any time without any permission. Blockchain can, hence, contribute with an authentication mechanism and later on settle the transactions financially (Che et al., 2019). One study focuses on the low scalability and high processing overhead when real-time energy data is collected by smart meters. The paper presents a tamper-evident solution that can track energy transaction less frequently with a blockchain technology hence, creating a more scalable model. At the same time was the model proven to be effective in settling energy imbalances (Pop et al., 2019).

13.7 Green certificates This category exemplifies the reports that have studied how blockchain can contribute to green certificate trading. One paper proposes an implementation of smart contracts for trading of energy-savings certificates where blockchain can contribute with data transparency between stakeholders as well as removing inefficient administrative processes (Khatoon et al., 2019). Another study discusses the challenge in developing a supply chain strategy for offshore wind energy since wind production requires the processing of a large amount of data that have to be both traceable and visible. One solution to this challenge can be to integrate blockchain since it can be used upstream, midstream and downstream of the production and certificate the electricity (Keivanpour et al., 2019).

13.8 Cryptocurrencies, tokens and investments Blockchain made its full commercial breakthrough via bitcoin and several papers in this literature propose or mention various tokens to create incentives for consumers. It was, however, only chosen to categorise one report into this area since the other reports mentioned a token-solution as a part of a more significant value offer. The one report chosen to be categorised in this segment proposes a cryptocurrency called ETcoin aiming at improving the security and privacy of EV users. The idea is to incentivise the EVs with maximum satisfiable participation in energy trading among the cars and to store all the accepted and transferred bids in a blockchain (Choubey et al., 2019).

13.9 General research General research is literature that has done a general overview of the subject either in the form of extensive literature reviews or as a study to investigate blockchain and electricity in general. Reports discuss various use cases in the grid and the most frequently mentioned areas are: P2P- energy trading, efficient data aggregation to enhance privacy and security problems, remotely

89 control energy flows by monitoring the usage statistics, prosumer development, robust systems against cyber-attacks, charge management of EVs, V2G, a complement to IoT, demand response, trust-less platforms and certifications (Alladi et al., 2019) (Brilliantov & Thurner, 2019)(Diestelmeier, 2019)(Kim et al., 2019)(Musleh et al., 2019)(Orecchini et al., 2019).

Among the benefits of blockchain, the most commonly mentioned characteristics are: decentralisation, transparency, immutability, efficiency, automation and security (Ahl et al., 2020)(Toetzer et al., 2019)(Song et al., 2019).

An Austria based study concluded via a survey that one-fifth of the decision-makers believe that blockchain will be a game-changer in the energy industry. However, the same survey also revealed an amount of scepticism and uncertainty regarding blockchain and established that the energy industry needs an application-oriented mindset towards blockchain to grasp the value of the technology (Toetzer et al., 2019).

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